JOHANNESBURG - More than one million South African state workers went on strike for more pay on Wednesday, threatening a prolonged action they say will bring the government in Africa's largest economy to a halt.

South African state workers seeking higher wages take part in a strike outside the Natalspruit hospital, east of Johannesburg, August 18, 2010. (REUTERS/Siphiwe Sibeko) The strike, punctuated by reported scuffles at hospitals and schools, is not immediately expected to have a major economic impact but a protracted work stoppage could hurt commerce at home and trade abroad.

"We have nothing to lose but the chains that bind us," said Norman Mampane, national spokesman for the POPCRU police and prison guards' union, which is one of the groups in the labour coalition representing about 1.3 million state workers.

The labour action is expected to escalate on Thursday as more unions join the work stoppage with protests including teachers trying to block one of the main highways into Johannesburg and hospital employees staging pickets outside emergency rooms.

Local media reported some pushing and shoving between striking workers and managers at a few hospitals and schools during Wednesday's action.

Economists worry that whatever deal is reached will swell state spending as the government tries to bring its deficit down from 6.7 percent of gross domestic product.

"As government, as the employer, we have indicated and demonstrated for all to see that our capacity to afford is actually exhausted," Public Services Minister Richard Baloyi told a news conference in Cape Town.

Baloyi said a deal would cost at least 5 billion rand $690 million (441 million pounds) more than budgeted and cuts would have to be made elsewhere. He repeated a threat that the government could unilaterally impose its wage offer to end the standoff.

Analysts expect a deal to be reached in the next few days at the earliest or before September at the latest, which would curtail economic damage.

The groups staged a one-day warning strike last week and said the action on Wednesday could be the start of the largest civil servants' strike in three years.

UNDER PRESSURE

The strike increases pressure on President Jacob Zuma's ruling African National Congress to reach a deal with organised labour and appease the party's longstanding union allies who also have been a reliable source of votes.

But pressure will also mount on unions to reach a deal as rank and file members lose pay from being off the job and some look favourably on the government's offer.

Public opinion could turn against the unions if a prolonged work stoppage forces parents to find day care for their children, delays treatment at hospitals and slows paperwork at government agencies.

A mid-range civil servant already makes about 40 percent more in wages and benefits than the average South African worker, who takes home 6,383 rand ($880) a month.

Those going on strike include police, healthcare workers, teachers and customs officials. Essential services are expected to be maintained through skeleton staffing.

"Additional pressure on public sector finances and the subsequent need to increase the taxes will have consequential downstream impact on both business and consumers," the South African Chamber of Commerce and Industry said in a statement.

The last big public sector strike in South Africa took place in 2007 when a four-week strike by 600,000 state workers cost the economy several million lost man-days, discouraged investors and angered the public.

Last week the government offered to increase the monthly housing allowance to 700 rand from a previous offer of 630 rand, but refused to increase its wage rise offer of 7 percent.

Unions are demanding an 8.6 percent pay rise, more than double the inflation rate, and 1,000 rand for housing.

The housing allowance alone would be equal to about one percent of all government spending.

(Additional reporting by Peroshni Govender and Wendell Roelf in Cape Town; Editing by Marius Bosch and Giles Elgood)