In a significant move for South Africa’s public sector, Finance Minister Enoch Godongwana has confirmed a 5.5% annual pay rise for government workers over the next three years. The wage hike, which exceeds the projected inflation rate, will cost the national treasury R23bn and is set to be implemented despite adjustments to the proposed VAT increase.
The announcement, made during the 2025 budget speech, underscores the government’s commitment to honoring its public service wage agreement. However, the decision comes amid fiscal challenges, including a reduced VAT hike that will see the South African Revenue Service (SARS) collect less revenue than initially projected.
Key Details of the Wage Agreemen
According to budget documents tabled in parliament, the 5.5% wage increase will be rolled out as follows:
- 2025/26: R7.3bn
- 2026/27: R7.8bn
- 2027/28: R8.2bn
The agreement ensures that government employees’ remuneration will rise 1 percentage point above the projected Consumer Price Index (CPI) inflation in the first year, aligning with CPI in the subsequent two years. This three-year plan aims to reduce uncertainty in budget planning, even though it exceeds the 2024 budget projections.
To fund the wage hikes, the government will partially draw down on its contingency reserve. “This agreement will cost the fiscus an additional R7.3bn in 2025/26, R7.8bn in 2026/27, and R8.2bn in 2027/28,” the budget document states.
VAT Adjustments and Fiscal Balancing Act
The wage hike comes alongside a scaled-back VAT increase. Initially, Godongwana proposed a 2 percentage point VAT hike to raise R68bn, but this plan was postponed due to disagreements within the government of national unity. Instead, a 0.5 percentage point VAT increase will be implemented in 2025/26, raising an additional R28bn. A similar hike will follow in the subsequent year.
While the VAT adjustments aim to bolster government coffers, they fall short of the original revenue targets. This has raised questions about how the government will balance its commitments to public sector wages with other fiscal priorities.
Early Retirement Plan to Trim Civil Service
In tandem with the wage agreement, the government is moving forward with its plan to reduce the number of civil servants by incentivizing early retirement. Over the next two years, R11bn has been allocated to encourage at least 30,000 government workers over the age of 55 to retire early.
The initiative aims to manage headcounts and moderate compensation spending by replacing older employees with new recruits at entry-level salaries. Preliminary estimates suggest savings of R7.1bn annually over the medium to long term.
However, the plan has faced criticism from trade union federations like Cosatu, which argue that losing experienced workers could harm service delivery. “This approach is undesirable and risks stripping the public service of skilled and experienced employees,” a Cosatu spokesperson said.
What This Means for South Africa
The 2025 budget reflects the government’s efforts to balance competing demands: rewarding public sector workers, managing fiscal constraints, and addressing long-term sustainability in the civil service. While the 5.5% wage hike is a win for government employees, the reduced VAT increase and early retirement plan highlight the complexities of budget planning in a challenging economic environment.
As the details of the budget unfold, all eyes will be on how these measures impact South Africa’s public sector and broader economy in the years to come.
Follow Joburg ETC on Facebook, Twitter , TikTok and Instagram
For more News in Johannesburg, visit joburgetc.com