imatu’s wage negotiations 2015/2016 position · pdf file ·...

IMATU’s Wage Negotiations 2015/2016 – POSITION DOCUMENT (2/3/2015)

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IMATU’S WAGE NEGOTIATIONS 2015/2016 POSITION DOCUMENT

1. INTRODUCTION

The purpose of this wage position document is to provide a basis for IMATU’s wage demands submitted on 12 February 2015. IMATU regards it as a matter of principle that the value of wages and salaries must keep pace with inflation and that wage increases should reflect the impact of real inflation on the worker. The basis for our wage demands is informed by a number of factors, the most important of which is the rising cost of living. The normal standard for measuring increases in inflation is CPI. However, CPI does not always reflect the effects of real inflation on the average employee. In fact it is well known that inflation affects different people differently. For the average worker who spend the majority of their income on accommodation, food and transport, real inflation is much higher than official headline CPI figures. The weighting of key inflation drivers such as for example food1 and transport in CPI is far too low which indicates that CPI very often reflects the spending patterns of the wealthy rather than the poor or middle class. Therefore, while CPI may be a good starting point, wage negotiations, in order to be realistic, must also have regard for the individual drivers of inflation which are often far higher than the official CPI figure. The Department of Labour’s Annual Industrial Action Report2 indicates that low wages, rising income inequalities and tough economic conditions have led analysts to predict difficult negotiations. We certainly share that sentiment insofar as it sets the background for this year’s wage negotiations.

2. DISCUSSION AND MOTIVATION

The motivations in support of our wage demands will focus of the following factors:

The Consumer Price Index (CPI);

Key inflation drivers;

The socio economic context;

Comparative wage settlements; and

Affordability. These factors will be considered in turn.

1 Food has a weighting of 14.20% in CPI, whereas the poor and middle class often spend between 30-50% of

their salary on food. 2 Annual Industrial Action Report 2013 – Page 3.


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Consumer Price Index (CPI)

Wage negotiations in the local government sector has always tracked the average CPI of the previous year (February to January). This is to ensure some predictability in budgeting for wage increases. Accordingly, the average CPI for the period February 2014 - January 2015 would be the relevant figure applicable to the 2015/2016 wage negotiations. According to Statistics SA, the CPI for the period January 2014 – December 2014 has averaged at 6% as can be seen as follows: CPI Figures: January 2014 – January 2015

Rate Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2014 5.8% 5.9% 6.0% 6.1% 6.6% 6.6% 6.3% 6.4% 5.9% 5.9% 5.8% 5.3%

2015 4.4% % % % % % % % % % % %

Average for 2014 6%

Average Feb 2014 – Jan 2015 5.9%

CPI for the period February 2014 – January 2015 has averaged at 5.9%. As can be seen from the above table CPI peaked during the period January 2014 to August 2014. During this period CPI escalated from 5.8% to 6.4% which is well outside the Reserve Bank’s target range of 3-6%.

The Reserve Bank has also estimated the CPI average figures for 2015-2017 as follows:

Year 2015 2016 2017

% 5.59% 5.39% 5.49%

South Africa’s major banks have indicated that their inflation forecasts for 2015 are as follows3:

Bank 2015

ABSA 5.5%

First National Bank 5.5%

Nedbank 6.0%

Standard Bank 5.8%

Average 5.7%

Key inflation drivers CPI only measures average inflation. As such, it does not always accurately reflect the real effects of inflation on the average person. Wage negotiations must therefore also have regard for the individual drivers of inflation which are often far higher than the official CPI figure. These inflation drivers include, but is not limited to, transport costs, food costs, medical aid costs, electricity costs, administered prices and the like.

3 Explanatory Memorandum Annual Remuneration Recommendation for Public Office Bearers 2014-2015 –

GG Notice No 38433 – 29 January 2015.


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Foreign Exchange The Rand/Dollar exchange rate has been volatile for some time and this has a major impact on inflation. The Rand is currently trading at around R11.62 to the US dollar4, breaching the R11 to the USD mark for the first time in 5 years. Transport Costs According to the Automobile Association (AA), the price of unleaded fuel in has, for the period 1 January 2012 to October 2014, increased as follows: 2012 Jan Feb Mar Apr May Jun

Petrol 95 R10.61 R10.95 R11.23 R11.94 R12.22 R11.67

Increase +0.34c +0.28c +0.71c +0.28c -0.55c

2012 Jul Aug Sept Oct Nov Dec

Petrol 95 R10.82 R11.04 R11.97 R12.20 R12.10 R12.01

Increase -0.85c +0.22c +0.93c +0.23c -0.10c -0.09c

Total Increases +R2.99

% Increases 28%

2013 Jan Feb Mar Apr May Jun

Petrol 95 R11.82 R12.27 R13.08 R13.20 R12.47 R12.39

Increase -0.19c +0.45c +0.81c +0.12c -0.73c -0.08c


Petrol 95 R13.23 R13.55 R13.50 R13.30 R13.02 R13.19

Increase +0.84c +0.32c -0.05c -0.20c -0.28c +0.17c


% Increases 23%


Petrol 95 R13.57 R13.96 R14.32 R14.39 R14.24 R14.02

Increase +0.38c +0.39c +0.36c +0.07c -0.15c -0.22c


Petrol 95 R14.33 R14.33 R13.66 R13.61 R13.16 R12.47

Increase +0.31c 0 -0.67c -0.05c -45c -69c


% Increases 11%


Petrol 95 R11.24 R10.31 R12.07 R R R Increase -R1.23 -93c R1.76


As can be seen from the above tables, the price of fuel has increased by around R3.00 per litre since 2012 and it reached an all-time high of R14.33 per litre in July 2014. As from this week, the fuel price will be at R12.07 per litre up from R10.61 in 2012. This equates to total increases of 62% since 2012. Fuel prices fell substantially towards the end of 2014 and the beginning of 2015. However, international crude oil prices are again steadily rising.

4 This figure changes on a daily basis.


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Brent crude oil increased from a low $46.60 per barrel to a current $61.58 which represents an increase of 32% in less than 2 months. In addition to these already high increases in the price of crude oil:

The General Fuel Levy will increase this year by 30.5c to R2.43 per litre.

The RAF Fuel Levy will increase by 50 cents to R1.46 per litre.

The cost of railway travel has also increased significantly. Metrorail increased its train fares in July 2014 by 50c for single tickets, R1 for return tickets, R3 - R7 for weekly tickets and by R7 - R30 for monthly tickets. The Gautrain service has also announced an increase its ticket prices in for 2014 of between 5% and 9% depending on the type of ticket purchased and Gautrain daily parking fees have increased by R3 from R15 to R18. In addition to these already high fuel and rail ticket price increases:

ACSA increased airport taxes by 5.6% for 2014. However, this comes on the back of an increase of 5.5% in 2013 and a massive 30.6% increase in 2012.

E-tolls introduced in the Gauteng Province have significantly increased the cost of private travel and travel between work and home. A recent report from the e-toll panel commissioned by the Gauteng Provincial Government found that the current e-toll system is unaffordable and inequitable, that low and middle income earners are carrying the most of funding burden and that province’s poor have been hit the hardest. Despite these findings, the provincial government has stated that e-tolls are here to stay.

Medical Aid Costs Increases in medical aid premiums payable to SALGBC accredited medical schemes since 2012 have been as follows:

Medical Scheme

Increase %

2012 2013 2014 2015

Bonitas 8.4% 9.9% 10.6% 7.2%

Keyhealth 12.3% 9.5% 8.9% 7.5%

LA Health 8.9% 9.9% 8.9% 6.6%

Hosmed 9.6% 7.2% 9.1% 8.7%

Samwumed 8.0% 10.3% 12.8% 9%

Average 9.44% 9.36% 10.06% 7.8%

As can be seen from the above table, medical aid premiums for local government employees have consistently increased at above inflation rates over the last three years with a particular upward trend shown in 2014. In 2014, medical aid premiums for local government employees increased by an


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average of 10.06% which is nearly 4% in excess of the estimated CPI for 2014. The average increase in medical aid premiums for 2015 is 7.8% which is also in excess of inflation (3.4% in excess of current inflation for 2015). The lowest premium increase is 6.6% and the highest increase is 9%.

Electricity Costs NERSA5 approved tariff hike of 12.69% for 2015 with effect from 1 July 2015 which is nearly three times the current rate of inflation. Annual electricity hikes since 2012 have been as follows:

Year 2012 2013 2014 2015

% Increase 16% 8.4% 8% 12.69%

As can be seen from the above table, all electricity increases since 2012 have generally exceeded the rate of inflation. By mid-2015, electricity prices will have increased by 45.09% since 2012. In addition, municipalities are allowed to add an additional percentage over and above the increases granted to ESKOM. NERSA has provided a guideline maximum of 7.39% which municipalities may implement over and above the increases implemented by ESKOM. However, NERSA approved increases higher than the guideline maximum for 13 municipalities in 2014 ranging from 8% to 15%6. Food Costs

Food prices remain a major source of inflation pressure with increases still in excess of the headline inflation rates and seeming with no relief in sight. The average food inflation for 2014 was at its highest level since 2012. According the LRS7 Inflation Monitor, increases in food inflation, since 2012, have been as follows: Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave

2012 10.7% 10.1% 8.9% 9.1% 6.89% 6.0% 5.4% 5.1% 6.1% 6.7% 7.5% 7.0% 7.4%

2013 6.4% 6.3% 5.9% 6.3% 6.4% 7.0% 7.1% 7.4% 6.0% 4.2% 3.7% 3.5% 5.8%

2014 4.3% 5.6% 7.2% 8.2% 9.1% 9.2% 9.0% 9.5% 8.7% 8.0% 7.7% 7.4% 7.8%

2015 6.6%

Weighting in CPI 14.20%

5 National Energy Regulator.

6 NERSA News Vol IX Ed II 2014, Page 7.

7 Labour Research Service (www.lrs.org.za).

http://www.lrs.org.za/


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As can be seen from the above table, food inflation stands at an average of 7.8% for 2014. It started in the first quarter of 2014 at a fairly low level but surged significantly in the third quarter. This is mainly due to higher fuel prices, the weakening exchange rate, a lack of competition amongst retailers and weather factors. The National Agricultural Marketing Council8 (a state owned enterprise) illustrates the impact of food inflation on consumers using the cost of a basic food basket based on monthly average food price data for the period July 2013 to July 2014. From July 2013 to July 2014 the cost of this basic food basket increased by about R37 (+8.0%) in nominal terms from R456 to R493. The cost of this food basket expressed as a share of the average monthly income of the poorest 30% of the population increased from 42.6% in July 2013 to 46%9 in July 2014 during this period. The cost of the food basket expressed as a share of the average monthly income of the wealthiest 30% of the population increased from 1.7% to 1.8%. South Africa’s food inflation is also fairly high compared to other countries. International food inflation of selected countries, for the period April 2013 to April 2014, is as follows:

International Food Inflation – Selected Countries (April 2013 – April 2014) Country Average Food Inflation (%)

South Africa 7.8%

Botswana 3.2%

Zambia 7.8%

Turkey 13.2%

Namibia 8.8%

United States 1.9%

United Kingdom 0.5%

Brazil 6.3%

Russia 8.7%

India 9.7%

China 2.3%

Housing and Utilities Housing and utility costs include mortgage costs, insurance, water, property taxes. According the LRS Inflation Monitor, increases in housing and utility costs since 2012 have been as follows: Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave

2012 6.6% 6.6% 6.6% 6.7% 6.7% 6.4% 5.7% 5.8% 5.9% 6.0% 6.0% 6.0% 6.2%

2013 6.0% 5.9% 5.9% 5.8% 5.8% 5.8% 5.5% 5.4% 5.4% 5.3% 5.3% 5.5% 5.6%

2014 5.4% 5.5% 5.6% 5.7% 5.7% 5.8% 5.9% 5.9% 5.8% 5.8% 5.8% 5.7% 5.7%

Weighting in CPI 24.52%

8 National Agricultural Marketing Council Food Price Monitor – August 2014.

9 In other words the poorest 30% of the population currently spend 46% of their income on food.


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Most municipalities introduce new water and property tax assessment tariffs in July each year but these increases are largely unregulated. Water and assessment rates increased by an average of 9.2% and 7.2% respectively, which is well above the average CPI. This represents an average increase of 8.2% for 2014. Administered Prices (Excluding Fuel Prices) Administered prices are those prices which are determined or influenced by government. These include school fees, telephone fees, electricity, cell calls and public transport. Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ave

2012 11.6% 11.7% 11.2% 11.6% 11.4% 10.1% 7.5% 8.0% 9.8% 9.5% 8.7% 8.8% 9.9%

2013 8.5% 8.9% 10.6% 8.9% 6.3% 7.5% 11.1% 11.1% 8.9% 7.8% 7.3% 7.8% 8.7%

2014 9.3% 9.1% 7.6% 7.4% 8.9% 8.6% 7.0% 6.2% 4.7% 5.1% 4.8% 2.6% 6.5%

As can be seen from the above table, inflation on administered prices have exceeded the rate of general inflation for every year since 2012 and averaged at a rate of 6.5% at the third quarter of 2014. The key drivers of administered price inflation remain the high cost of fuel and electricity price increases. Interest Rates The repo rate was increased by 50 basis points in January 2014 and by 0.25 basis points in July 2014 thus bringing the prime lending rate to 9.25%, up from 8.5% at the start of 2014. No adjustments have so far been made for 2015. Inflation has come back within the Reserve Bank’s target band of 3-6%10 but only just. According Investec economists11, increases in the prime lending rate over the next three years are estimated to be as follows:

Year 2014 2015 2016

Prime Lending Rate %

9.75% 10% 10.5%

As can be seen from the above projections, the cost of borrowing is clearly on an upward trend. Such further increases in borrowing costs are expected to put already strained household disposable incomes under severe pressure over the next three years.

10

Inflation is currently averaging at 6.17%. 11

Investec Monetary Policy Update – September 2014.


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Socio- Economic Context According to Minister of Finance12, while the global economic outlook remains unsteady, South Africa’s economy continues to grow, with a projected average growth rate of 2% this year. South African economic growth, since 2012, has been as follows: Year 1

st Quarter 2

nd Quarter 3

rd Quarter 4

th Quarter Average

2012 3.8% 2.4% 2.6% 1.3% 2.5%

2013 2.3% 0.8% 3.2% 0.7% 1.7%

2014 3.8% -0.6% 0.6% 4.1% 1.9%

It is important to note that the economy is not in a recession. The Reserve Bank Governor has also confirmed that the country is not at risk of a recession in the medium term. The Minister of Finance13 expects economic growth to improve significantly in the short term and has predicted that the pattern of economic growth for the period 2015-2017 years will be as follows:

Year 2015 2016 2017

Economic Growth %

2% 2.4% 3%

Continued economic growth such as outlined above means that government will have a larger tax base from which to collect revenues over the next three years. South Africa’s budget deficit has also declined from 5.2% in 2013 to 4% of GDP in 2014. The Minister of Finance predict that the budget deficit would be cut to 3.9% in 2015/2016 and 2.5% in 2016/2017. Despite steady economic growth, the average South African’s disposable income is declining as consumers’ battle higher high debt levels and increases to administered prices. Household debt remains high and consumers have been struggling to repay debt as rising inflation and administered prices reduce their buying power. Household debt to disposable income has risen to 75.8% this year, indicating that a large portion of disposable income still goes to servicing debt14. Last year’s credit data from the National Credit Regulator showed that almost half (48%) of credit active consumers had impaired credit records.

12

2014 Budget Speech delivered on 26 February 2014. 13

Minister of Finance 2015 Budget Speech – 25 February 2015. 14

FNB Household Consumer Debt Service Risk Index – September 2014.


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Rising prices coupled with increased borrowing costs are expected to put disposable incomes under pressure in the coming months. BanksServ’s BDSI15 indicates that real salary increases are becoming constrained and that the average South African’s salary has declined for the first time since January 2014. The Reserve Bank also confirmed that consumption expenditure by households is expected to remain constrained in the face of continued weakness in credit extension, rising inflation and high consumer indebtedness16.

Moreover, it is well known that SARS has, over the past two years, squeezed taxpayers with a fiscal creep17 by lifting tax thresholds by less than inflation thus bringing more taxpayers into the top margin tax bracket, effectively grabbing a larger share of their previous years’ salary increases. This has been going on for at least the last 2 years. In 2013 tax brackets were adjusted by 3.5% on average while the average CPI for that year was 5.7% and in 2014 tax brackets were adjusted by 5.4% on average, while the average CPI for that year was 6.1%. This so-called “bracket creep” resulted in decreased disposable income for employees who have gotten considerably poorer in real terms over the last two years despite receiving inflation linked salary increases. IMATU has in fact formally requested the Minister of Finance to abolish the practice. This year, the tax brackets will be raised by 4.2% which is about 0.2% less than current CPI. In addition, the Minister of Finance18 recently announced an increase in personal income tax of 1%, amounting to R17 billion, thus raising taxes for the first time in 25 years as national government seeks to raise an additional R44 billion in taxes over the next three years.

The latest figures released by SARS indicate that national government raked in around R900 billion in taxes in 2014 which represent an increase of 10% from the previous year. This is while inflation is currently averaging at 6%. Thus effectively the national government has earned an income 4% higher than inflation from taxpayers largely through the bracket creep. In nominal terms, the taxman has squeezed more than R 33 billion extra from individuals. Over the past year, personal income tax represented 34.5% of overall tax collection (up from 34% the previous year) while corporate tax has been steadily declining. Effectively, it is workers and not employers who are carrying more and more of the tax burden each year. Poverty levels also remain high with the number of people eligible for social assistance grants to reach 16.5 million by the 2016/2017 financial year. South Africa remains one of the most unequal societies in the world with a significant increase in income inequality resulting in the widest gap between the rich and the poor.

15

BankServAfrica Disposable Salary Index (in partnership with Mike Schussler) - 26 September 2014. 16

Reserve Bank 2014 Economic Outlook Document – 22 May 2014. 17

Aka a “bracket creep”. The process whereby inflation pushes nominal wages and salaries into higher tax brackets.

18 Minister of Finance 2015 Budget Speech – 25 February 2015.

http://en.wikipedia.org/wiki/Inflation

http://en.wikipedia.org/wiki/Tax_bracket

http://en.wikipedia.org/wiki/Tax_bracket


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Wage Settlements According to the most recent Andrew Levy Wage Settlements Survey19, the average level of settlements of wage negotiations in centralised bargaining councils has been as follows: Sector Analysis: 1 January 2014 to 31 December 2014 Industry Increase

Public Sector 6.5%

Food / Agriculture 6.7%

Health / Education 7.2%

Communication 7.4%

Other 7.5%

Retail / Catering 7.8%

Municipal / Utility 7.9%

Transport / Freight 7.9%

Food / Manufacturing 8.1%

Chemical 8.2%

Metal / Engineering 8.3%

Paper / Printing 8.5%

Building / Construction 9.0%

Finance 9.0%

Mining 10.3%

Average Settlement Rate 8.0%

As can be seen from the above table, the average settlement rate in all centralised bargaining councils for 2014 stands at 8%. The highest settlement rate is 10.3% in the Mining Sector and the lowest settlement rate was 6.5% in Public Sector. Distribution of Settlements: 2014 Andrew Levy20 has also calculated the percentages of the range of settlements reached as follows:

Settlement Percentage

5% to 5.9% 3.3%

6% to 6.9% 10.0%

7% to 7.9% 26.7%

8% to 8.9% 35.0%

9% to 9.9% 16.7%

10% to 10.9% 8.3%

The majority of settlements (61%) were negotiated in the region of 8% and above. Around 39% of wage agreements fell within the 5% to 7.9% range. The average settlement rate of 8% constituted 36.6% of wage agreements.

19

Wage Settlements Survey Quarterly Report – December 2014. 20

Wage Settlements Survey Quarterly Report – December 2014.


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Average Settlement Rates versus Local Government Wage Increases According to Andrew Levy’s Wage Settlements Survey21, the average rate of wage increases in other sectors as compared to the rate of wage increases for Local Government since 2009 has been as follows: Year 2009 2010 2011 2012 2013 2014

Average wage increase in all sectors.

9.3% 8.2% 7.7% 7.6% 7.9% 8.0%

Local Government wage increase

13% 8.48% 6.8% 6.5% 6.84% +0.5%

6.79%

Difference +3.7% +0.28% -0.9% -1.1% -0.56% -1.21%

This can be further represented as follows: As can be seen from the above tables, local government wage increases exceeded the national average for 2009 and 2010. However, for the period 2011 to 2014, wage increases in the local government sector fell below the national average. As seen from above, local government has in fact gone through a period of 4 years of wage restraint. Wage increases have consistently fallen short of the national average by 1.1% in 2012, 0.56% in 2013 and 1.21% in 2014. This represents an overall shortfall of 2.87% compared to other sectors. Minimum Wage The current minimum wage in the local government sector is R5 621-4322. IMATU has filed a minimum wage demand of R9 625-00.

21

Wage Settlements Survey Quarterly Report – June 2014. 22

Salary and Wage Collective Agreement 2012-2015 dated 27 July 2012.

0

2

4

6

8

10

12

14

2009 2010 2011 2012 2013 2014

All Sectors Local Government


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The ILO recommends that an acceptable gap between the lowest and highest earner should be at a ratio of 1:12. All the parties to the SALGBC have always accepted this standard. Even in the last round of wage curve negotiations, this was the accepted standard. As will be shown below, municipal managers in metropolitan municipalities are generally earning a monthly salary of between R2.3m to R3.2m which represents a wage gap ratio of around 1:20 to 1:28 between the lowest and highest earner in local government. IMATU’s minimum wage demand intends to address this unacceptably large wage gap in local government.

Housing Allowance The current home owner’s allowance in the local government sector is R522 and is available only to employees who own houses. IMATU has filed a housing allowance demand of a flat rate of R1 800-00 to be extended to all employees. The home owner’s allowance, introduced in the sector in the early 80’s has had little in the way of adjustments. The maximum bond on which the housing allowance formula is based was adjusted only once during the 2009-2011 salary and wage agreement to a maximum bond of R135 000-00. Other than this adjustment, it has for the most part, stagnated since the early 80’s. When the housing allowance was originally introduced, the intention was that it should cover a significant amount (close to 50%) of an employee mortgage bond payments. An employee who owned a modest three bedroom house during the 80’s could expect to pay around R1 000-00 per month to service a mortgage bond and the housing allowance covered nearly 50% of that. Today an employee owning the same modest three bedroom house can expect to pay around R10 000-00 to R12 000-00 per month while getting a housing allowance which covers around 4.5% of mortgage bond payments. The current housing allowance, due to it having stagnated for so long has not kept pace with the housing market and rising cost of living. The home owners allowance has also fallen behind with other sectors. The public service housing allowance is currently at a flat rate of R900-00 and is extended to all employees whether, they own or rent a house. Public sector unions have filed a housing allowance demand of R3 000-00 during this year’s wage negotiations. Housing allowances in SOE’s such as ESKOM are already at over R2 000-00 per month. These allowances are far more realistic in the current housing market. IMATU believes that there is no justification for making a distinction between employees who rent homes and employees who own homes. The allowance should be payable to all employees whether or not they own a home as it is done in the public sector. For many employees, the high cost of owning a home and more stringent lending conditions makes housing ownership simply out of reach. According to a recent study in the public sector, only 28% of


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employees own homes. This figure is possibly far lower in the local government sector as the housing allowance is only 50% of what is paid in the public sector. Therefore, we demand that a housing allowance be extended to all employees. Increases in house prices is not a parameter in the SALGBC formula on which the home owners allowance is based. It is instead crucially dependent on the interest rate which increases or decreases the allowance as the interest rate goes up or down. IMATU demands that the formula be replaced by a flat rate system which increases annually at the same rate as the across the board salary and wage increase in order to keep up with annual increases in the cost of housing.

Affordability

On 29 August 2014, National Treasury released the 2014 Local Government Revenue and Expenditure Report (LGRER) which sets out the financial statements of municipalities on a consolidated basis. The Auditor General also released its Consolidated General Report on the Audit Outcomes of Local Government on 30 July 2014. A number of newspapers also reported on the general state of finances in Local Government. From these reports and other sources, the following information can be extrapolated. Municipal Budget for 2015 and 2016 wage increases Municipalities have been advised by National Treasury to budget for salary increases as follows23: Financial Year Budgeted Wage Increase Rationale

2015/2016 6.4% 5.4% (estimated CPI) + 1%

2016/2017 6.4% 5.4% (estimated CPI) + 1%

Moreover, the President recently approved salary increase for political office bearers in municipalities of 5% for those earning more than R1 000 000 p/a and 6% for those earning less than R1 000 000 p/a.

Consolidated Municipal Surpluses Municipalities are not profit driven entities like private sector employers. However, municipalities do make surpluses, i.e. amounts left over from operating revenues after all expenditures have been paid. According to the LGRER, municipalities have shown a combined aggregated surplus of over R1 billion as at 30 June 2014. This amount is derived at by utilising the information in the LGRER as follows:

23

National Treasury: Municipal Budget Circular for the 2014/15 MTREF 4 December 2013, Page 16.


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Item Amount24

Aggregated Revenue R292 438 160

(Less) Aggregated Expenditure - R281 898 115

Total Surplus R1 054 005

This combined municipal surplus represent the primary financial resource which can serve to fund legitimate wage increases in the next financial year. Uncollected Revenue According to the LGRER, municipalities are owed a combined debt of around R94 billion for the 2013/2014 financial year. This is represented in the debtors age analysis by customer group as follows: Debtors Age Analysis by Customer Group Amount

25 %

Organs of State 4 503 794 4.8%

Commercial 19 748 768 21.0%

Households 57 892 837 61.6%

Other 11 879 083 12.6%

Total 94 024 481 100.0%

As can be seen from the above, by far the largest percentage of uncollected revenue are owed by households. The LGRER, however, correctly points out that a contributing factor to the underperformance of debt collections in this area include reduced affordability of municipal services by poor households. However, there seems to be little excuse for municipalities failing to collect outstanding revenue from organs of state (provincial, national government and SOE’s) and commercial entities (private businesses). The Auditor’s Report26 has revealed that municipalities often not only have ineffective controls and processes to determine who owes money to them and bill debtors correctly, but there is also a general reluctance to hand over long outstanding debts for collection and politicians do not provide the political backing for revenue enhancement and collection. Moreover, residents increasingly refuse to pay for services which they consider inadequate. These municipal debt figures represent potential revenue that can be collected by municipalities, and serve to fund legitimate wage increases, if the performance of debt collecting departments and/or agencies are improved.

Wasted and Fruitless Expenditure According to the Auditor General’s Report27, municipalities racked up a combined figure of R21.61 billion spent on unauthorised, irregular, fruitless and wasteful expenditure. This is up from R20.056 billion in the previous financial year. This figure consists of the following:

24

Amount in R thousands. 25


Section 3.5 Financial Health – Page 71. 27

Section 2.3.1 Compliance with Legislation – Page 43 - 49.


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Item Amount Previous Financial Year

Unauthorised spending R9.195 bn R10.11 bn

Irregular, fruitless & wasteful expenditure R11.6 bn R9.232 bn

The irregular, fruitless and wasteful expenditure figure includes R8 billion spent on good and services that did not follow proper procurement processes as well as R3.6 billion that did not have supporting documentation and could not therefore be verified. These figures represent further potential revenue that can serve to fund legitimate wage increases if proper financial management practices are put in place and adhered to and if such losses are recovered. Expenditure on Consultants The Auditor General’s Report28 highlights that municipalities have spent a combined amount of R734 million on consultants which were used primarily in the area of financial reporting and HR - related matters. The Auditor General’s Report further highlights that a lack of skills remain the most common reason for the continued use of consultants at enormous costs. Ironically, despite increased use of consultants in financial reporting, only 30 municipalities received clean audits in the last financial year. In a recent Municipal Budget Circular29 issued by National Treasury, it was stated that municipalities still continue to make excessive use of consultants in daily operations. Moreover, due to the fact that there are no standardised tariffs and rates for these services, municipalities are charged exorbitant rates for such services. The figure spent on consultants represent further potential revenue that can serve to fund legitimate wage increases if the skills problem in the sector is adequately addressed. Non- Priority Spending The Municipal Budget Circular30 further stated that although National Treasury continually advises municipalities to eliminate non-priority spending, the advice has gone unheeded. According to the circular, municipalities continue to excessively sponsor music festivals and art festivals.

Municipal Wage Bill as a Percentage of Total Expenditure According to the LGRER, municipal spending on wages and salaries for municipal staff and for the 2013/2014 financial year is currently at 24.46% of national aggregated expenditure. This figure is derived at by utilising the information in the LGRER as follows:

28

Section 3.3.2 Effective use of Consultants – Page 63 - 64. 29

Municipal Budget Circular for the 2015/2016 MTREF, Page 11. 30

Page 10.


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Item Figure

31

Salaries and Wage Expenditure R68 961 90432

Aggregated Expenditure R281 898 115

Wage Bill as a percentage of expenditure 24.46%

As can be seen from the above table, the wage bill in local government do not currently exceed 30% of aggregated expenditure. If a wage increase of 15% is implemented, the results would be as follows:

Item Amount33

Wage Increase

(15%)

Local Government Wage Bill R68 961 904 R79 306 189

Aggregated Expenditure R281 898 115 R281 898 115

Wage Bill as a percentage of expenditure

24.46% 28.13%

Therefore, as can be seen from the above, a wage increase of 15% would increase the wage bill to 28.13% of aggregated national expenditure. This will not have the net effect of the wage bill exceeding 30% of aggregated national expenditure. Executive Remuneration In Local Government, executive pay continues to be excessive and is leading to an ever increasing wage gap. Some recent examples, from 2014 newspaper reports, financial statements, annual reports and treasury information, include the following34:

The City of Johannesburg’s MM earns R3.2 million p/a despite the fact that the City is yet to receive a clean audit;

Tshwane Municipality’s MM earns R3.05 million p/a despite the fact that the City failed to receive a clean audit;

eThekwini Municipality’s MM earns R2.75 million p/a despite the fact that the City is yet to receive a clean audit;

City of Cape Town’s MM earns R2.3 million p/a; and

Buffalo City Municipality’s MM earns R1.82 million p/a despite the fact that the City is yet to receive a clean audit;

Nelson Mandela Bay Municipality’s MM earns R1.66 million p/a despite the fact that the City is yet to receive a clean audit;

Despite being cash strapped for years and service delivery paralysed, Gariep Local Municipality’s MM earns R1.38 million p/a.

31


This figure also include inflated salaries paid to municipal managers and executive directors. 33


These figures do not include performance bonuses.


17

Early in 2014 COGTA issued regulations which determine the upper limits for executive remuneration in Local Government35. The upper limit for a municipal manager at the smallest municipality in the sector has been set at R703 000 while upper limit for a metropolitan municipality is R2.8 million. This means that despite the introduction of upper limits, municipal managers will continue to earn more than the President, Cabinet Ministers and the Chief Justice of the Constitutional Court.36 It must be noted that SALGA is on record as opposing the Minister’s attempts to cap executive remuneration in local government37. Summary In summary therefore it is submitted that the following factors establish that our wage demand is affordable:

Sufficient surpluses to cover a reasonable wage increase;

Wage bill still within reasonable range;

Change in spending priorities;

Curbing corruption, wasteful expenditure and excessive reliance on consultants; and

Collecting revenue owed by national, provincial government and commercial enterprises.

Notwithstanding the financial information set out above, it is expected that SALGA will once again plead poverty at the next round of wage negotiations, and ordinary workers will be expected to make sacrifices. Productivity

IMATU has been working closely with the Department of Cooperative Governance and Traditional Affairs (COGTA) as well as the Department of Public Service and Administration (DPSA) to address issues of productivity in the local government sector. IMATU’s has cooperated fully with the DPSA in its development of the Public Administration Management Act as well as with COGTA in its development of Municipal Staff Regulations, both of which aims to set new norms, standards and ethics for local government service delivery to the public and rooting out corruption. Moreover, IMATU is addressing our members, on a continuous basis, on the importance of maintaining a strong work ethic.

35

The upper limits do not apply to existing contracts. 36

The President currently earns R2.66m p/a. The Deputy President earns R 2.47m. The Chief Justice of the Constitutional Court earns R2.47m p/a and National Government Ministers earn around R2m p/a.

37 SALGA takes issue with draft regulations. – Local Government Bulletin Vol. 14 (2) June 2012 Page 6-8.


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Duration of the agreement According to Andrew Levy’s Wage Settlement Survey of December 201438, the majority (70%) of wage agreements concluded in 2014 were single year agreements, 19% for 2 years and 11% for three years. The general trend is therefore moving away from multi-year agreements in favour of single year agreements. Our wage demand for a single year agreement clearly falls within the current norm across all industries Average trade union opening demands According to Andrew Levy’s Wage Settlement Survey39 initial union wage demands across all sectors for 2014 ranged from 8.5% to 21% and averaged at 15.2%. This compares to an average of 15% in September 2013. Therefore, the average trend amongst all sector trade unions, for the last two years, has been to enter wage negotiations with an opening demand of around 15%40.

3. BASED ON THE INFORMATION SET OUT HEREIN, IMATU DEMANDS THE FOLLOWING: (a) Salary Increase

An across the board increase of 15% or R4 000-00, whichever is the greater.

(b) Minimum Wage A Local Government Minimum Wage of R9 625-00.

(c) Benefits and Conditions of Service All benefits and conditions of service to increase by the same rate as the across the board salary increase.

(d) Housing Allowance An increase in the current Home Owners Allowance to a flat rate amount of R1 800. The Home Owners allowance to be changed to a Housing Allowance extended to employees who own houses as well as

38

Page 19. 39

Wage Settlements Survey Quarterly Report – September 2014. 40

All Public Service trade unions also tabled a joint opening wage demand of 15%.


19

those who rent houses. This allowance must increase by the same percentage as the annual salary increase with effect from 1 July every year.

(e) Term of the agreement

A single term agreement with effect from 1 July 2015 until 30 June 2016. It is submitted that given the above information, IMATU’s wage demands for the 2015/2016 financial year are not only reasonable and legitimate but is also affordable as the sector clearly has sufficient financial resources to fund legitimate wage increases.

-End-


20

Wage Negotiations 2015/2016 Bibliography

2014 Budget Speech delivered on 26 February 2014.

2014 Medium Term Budget Policy Statement – 22 October 2014.

BankServAfrica Disposable Salary Index (in partnership with Mike Schussler) - 26 September 2014.

FNB Household Consumer Debt Service Risk Index – September 2014.

Government Gazette Notice No. 37701 of 6 June 2014.

Investec Monetary Policy Update – September 2014.

Labour Research Service (www.lrs.org.za).

LRS Collective Bargaining Indicators – Volume 14, November 2014.

National Agricultural Marketing Council Food Price Monitor – April 2014.

National Agricultural Marketing Council Food Price Monitor – August 2014.

National Energy Regulator.

National Treasury: Municipal Budget Circular for the 2014/15 MTREF 4 December 2013, page 16.

Reserve Bank 2014 Economic Outlook Document – 22 May 2014.

Salary and Wage Collective Agreement 2012-2015 dated 27 July 2012.

Section 2.3.1 Compliance with Legislation – Page 43 - 49.

Section 3.3.2 Effective use of Consultants – Page 63 - 64.

Section 3.5 Financial Health – Page 71.

Wage Settlements Survey Quarterly Report – June 2014.

Wage Settlements Survey Quarterly Report – September 2014.

http://www.lrs.org.za/

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