The author has found no significant relationship between the South African public sector wage bill and domestic real economic growth in either the short or long run - meaning an increase in the government wage bill does not correspond to higher economic growth. But there are indications that health expenditure delivers better returns, writes Geoffrey NöltingFor some time, there has been considerable attention given to the size and rate of growth of government’s wage bill.
If the National Treasury deviates from their intended budget, this could threaten fiscal consolidation and could lead to further credit rating downgrades. On the other hand, there is also the risk that public sector employees stage walk outs which would also have an adverse impact on service delivery.
Using several econometric models, we find that there is no significant relationship between the South African public sector wage bill and domestic real economic growth in either the short or long run. So according to our models, an increase in the government wage bill does not correspond to higher economic growth.
According to another set of our models, government expenditure is at the peak of the optimal level of government expenditure. That is to say, there exists an ‘’ relationship between government expenditure-to-GDP and economic growth. This implies that there is an optimal point to this relationship. It is of utmost importance that the government focus on the growth-enhancing policies. This is because there is limited scope to increase taxes to fund expenditure.It is also an important point as the public sector has been a major employer in the new democratic dispensation. The public sector has also played a pivotal role and been a major driver of racial and gender transformation as well as addressing the racial wage gap disparities that are a legacy of apartheid.
Just a correction. The 4.5% non pensionable part of the 7.5% increase is actually 2021's increase government wanted to spin off as an increase for 2022 again. Imagine last year's increase being said is part of this year's increase. That is exactly what government did