A powerful South African labor leader threatened on Sunday to withdraw support for President Jacob Zuma's African National Congress, ending a long- standing alliance strained by a nearly three-week-old strike.
Adding to the pressure on the government, a union representing tire makers announced a strike for higher wages from Monday. Thousands of armed forces unionized members are also thinking of striking.
The government and unions have opened a new round of wage negotiations to end the dispute that has shut schools and prevented treatment of the sick, broadcaster eNews reported unnamed sources as saying
This month's strike by about 1.3 million state workers, including teachers, nurses, customs officers and government clerks has presented Zuma with one of his most serious challenges since taking office more than a year ago.
Unions are trying to link the labor action to Zuma's political future.
"We will not make a mistake again of voting into power our worst political butchers," COSATU Secretary-General Zwelinzima Vavi said at a rally.
COSATU helped Zuma win the presidency and its support is essential if he wants to seek re-election. Vavi last week said the alliance with the ANC forged in the struggle to end apartheid was on the verge of rupture.
COSATU has already threatened to widen the state workers' strike later this week to all of its member unions who it says represent about 2 million workers.
A one-day strike set for Thursday will probably not do much economic damage but COSATU has said the action could turn into an indefinite strike, which would cause major damage in industries including mining, which alone is responsible for about 5 to 6 percent of GDP.
Analysts expect Zuma and the ANC government, which has typically given in to labor's demands, to reach a deal soon, tilted in favor of the unions, and worry later about the damage to state spending.
"It wouldn't surprise me if there was some sort of resolution by the end of the week," labor analyst Tony Healy told Talk Radio 702.
An expanded strike would add to worries about prospects for growth after the economy slowed more than expected in the second quarter of 2010 as mining contracted and manufacturing expanded at a slower pace.
The government has said it cannot afford the state workers' demand of an 8.6 percent wage rise, more than double the inflation rate, and 1,000 rand ($135.8) a month as a housing allowance. It has offered 7 percent and 700 rand.
Any agreement to end the dispute is likely to swell state spending by about 1 to 2 percent, forcing the government to find new funds just as it tries to bring down a deficit totaling 6.7 percent of gross domestic product.
"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," government spokesman Themba Maseko said in a report.
Spending on personnel is the biggest category of state expenditure, taking up about a third of the budget. In 2006/07, about 35 percent of tax revenue went to paying state employees and that rose to about 47 percent in 2009/10, the report said.
Bond, stock and rand trading have mostly been unaffected by the strike but market players said that could change if there is no deal by the end of the week and if the strike widens to industries which could hurt local shares and dent sentiment.