S.Africa civil workers' wage offer to hit budget

By Phumza Macanda

JOHANNESBURG (Reuters) - The South African government's latest wage offer to striking public sector workers will lead to increased state borrowing and may put the country's sovereign credit rating under threat.

The lessons learned from Europe's debt crisis are still fresh in the minds of South African authorities and they want to press on with plans to slow down borrowing and cut the country's large budget deficit.

But the government's improved offer of a 7.5 percent wage increase - double the inflation rate of 3.7 percent -- and an 800 rand housing allowance puts a damper on those plans.

The state's wage bill already makes up a third of its entire spending and almost half of the tax revenue it collects.

"Put simply, government will be borrowing money to pay wages and debt service costs. This is not only unsustainable but will require future generations to pay for our current spending," said government's spokesman Themba Maseko in a statement on Sunday.

"The fiscal trajectory over the next few years aims to moderate our borrowing while continuing to support the economy ... Unexpected growth in wages will compromise our ability to meet those objectives," he added.

After two years of surplus, the budget deficit widened to 6.7 percent of GDP in 2009/10, with plans to trim it to around 4 percent by 2013 and moderate borrowing.

"Anyway you (look at it), it's exceptionally difficult for government to give in to the high wage demands in this environment," said Dennis Dykes, chief economist at Nedbank.