GEORGE MASENGU: Progress or deterioration? The knock-on effect of rising municipal wages

As South African municipalities grapple with the dual challenges of shrinking budgets and increasing demands for public services, one of the most pressing and controversial issues has quietly been escalating: the relentless rise in municipal wages.

While the role of municipal employees in delivering essential services is undeniable, the question must be asked - are these rising wages sustainable, or are they steering our local governments toward financial ruin?

Beneath the surface of this seemingly routine matter lies a brewing crisis. Municipalities, once the backbone of local service delivery, are now buckling under the weight of employee-related costs that threaten their ability to maintain infrastructure and fulfil their constitutional mandate.

As the financial distress deepens, it's time to examine whether the current trajectory of wage increases is paving the way for progress, or setting the stage for widespread service delivery failures and fiscal collapse.

South African municipalities are constitutionally mandated to provide essential services to communities, fostering both social and economic development.

To achieve this, municipalities must manage revenue generation and operational expenditure with precision, ensuring that infrastructure is maintained, refurbished, and expanded as needed. However, a growing concern is the escalating employee-related costs, which have become one of the most significant components of municipal operational expenses.

This trend raises questions about the sustainability of service delivery and the overall financial health of our local governments.

Employee-related costs in municipalities are substantial, with the National Treasury's Municipal Finance Management Act Circular 71 recommending that these costs should range between 25% to 45% of total operational expenditure.

This leaves at best 55% of the budget for other critical expenses, such as infrastructure maintenance, contracted services, and the procurement of electricity and water. In reality, this balance is often tipped further by wage increases that do not align with the economic realities faced by many municipalities.

The determination of municipal wage increases is largely influenced by the Bargaining Committee of the Central Council, which pegs these increases to the consumer price index (CPI).

While this approach might seem fair in theory, it does not account for the financial viability of individual municipalities. As a result, municipalities are often forced to allocate a significant portion of their limited resources to cover these recurrent expenses, leaving little room for critical investments in infrastructure and service delivery.

The financial distress faced by many municipalities is a clear indicator of the unsustainable nature of current wage practices.

National Treasury reports that 66 municipalities are critically financially distressed, unable to meet their financial obligations, and are struggling with unfunded budgets. This financial strain is further exacerbated by poor collection rates, which fall below the Treasury's norm of 95%, and the increasing debt owed to municipalities, which has ballooned from R128 billion in 2017/18 to R255 billion in 2022.

The consequence of these financial pressures is a vicious cycle of deteriorating infrastructure and declining service delivery. In 2022, 225 municipalities spent less than 8% of the net book value of their assets on repairs and maintenance, leading to failed infrastructure and, ultimately, service delivery breakdowns.

The situation is so dire that in March 2023, National Treasury had to introduce an Eskom debt relief program for over 60 municipalities, highlighting the severity of the financial mismanagement at play.

One of the fundamental issues contributing to this crisis is the lack of accountability and merit-based recruitment within municipalities.

Performance management systems are often ineffective, and there is limited recourse for dealing with unproductive employees. As a result, wage increases continue to be awarded, despite clear evidence of operational and strategic inefficiencies.

This disconnect between employee performance and compensation is not only financially unsustainable but also undermines the ability of municipalities to deliver on their core mandate.

The continued increase in wages and salaries, without a corresponding increase in municipal revenue and cash-generating activities, is pushing many municipalities to the brink of insolvency.

The State of Local Government Finances and Financial Management of 2022 reveals that 188 municipalities lacked sufficient cash to cover their current obligations, with creditors increasing from R51.1 billion in 2017/18 to R89.7 billion in 2021/22.

This growing financial burden is untenable, and the liquidity of municipalities is rapidly deteriorating.

As South Africa faces an unemployment rate of 33.5% in 2024, up from 25.4% in 2019, the financial mismanagement within municipalities is particularly concerning. It reflects a broader issue of systemic inefficiencies that, if left unaddressed, will continue to erode the quality of public services and infrastructure that communities rely on.

Persistent wage increases in South African municipalities, unaligned with economic realities and performance outcomes, are driving a financial crisis that threatens the foundation of local government.

However, this trajectory can be altered through proactive and strategic reforms.

Firstly, municipalities must implement merit-based recruitment and rigorous performance management systems to ensure that only competent and productive employees are rewarded. This will help align wage increases with actual performance, fostering a culture of accountability and efficiency.

Secondly, municipalities should explore innovative revenue-generating strategies, such as public-private partnerships and local economic development initiatives, to bolster their financial base. By diversifying revenue streams, municipalities can better manage their operational costs and reduce the dependency on limited resources.

Lastly, wage negotiations must consider the financial health of municipalities. A collaborative approach, where labour unions, municipal leaders, and financial experts work together, can ensure that wage agreements are sustainable and do not compromise service delivery or financial stability.

By adopting these solutions, municipalities can navigate their financial challenges, safeguard essential services, and ultimately fulfil their constitutional mandate to support and uplift the communities they serve.