A wage agreement between the government and civil servants for the 2021/22 fiscal year will cost about R20bn, the National Treasury said on Wednesday.

The government and public sector employees struck a one-year deal last month for a 1.5% salary increase plus a cash payment, after several months of negotiations.

Trade unions initially demanded far larger above-inflation increases. The government, however, wanted to keep salaries flat to rein in a gaping budget deficit worsened by the Covid-19 pandemic.

But when talks reached a deadlock and unions threatened strike action, the government softened its position.

The National Treasury said in a presentation before a parliamentary committee that the R20bn cost was above the compensation ceiling contained in this year's February budget.

“Work is ongoing on how to address the wage agreement within the current constrained environment,” the presentation added.

The government's wage bill, accounting for about a third of consolidated spending, has been a major concern for credit-rating agencies that have downgraded SA's sovereign debt to “junk” status.

Reuters