Moneyweb
By Suren Naidoo
Finance Minister Tito Mboweni on Wednesday announced main budget non-interest spending cuts totalling R300 billion for the period between 2021 and 2024, in his boldest move yet to slash government spending - especially around the state's bloated wage bill.
Mboweni and National Treasury finally bit the bullet revealing initial details of the plans during the tabling of the 2020 Medium-Term Budget Policy Statement (MTBPS) in Parliament in Cape Town.
The move is likely to face stiff opposition from public-sector unions, which have already taken the government to the labour court regarding its decision to freeze salaries this year.
The spending cuts almost equate to the government's latest expected revenue shortfall of just under R313 billion for this year, due to the Covid-19 economic fallout. Mboweni revealed an expected shortfall of R304 billion during the supplementary or emergency budget in June, however, this has deteriorated by a further R9 billion.
The 2020 MTBPS proposes the spending cuts as one of the main steps to reduce the fiscal deficit and stabilise SA's debt-to-GDP.
"Relative to the 2020 Budget, main budget non-interest spending [excluding technical adjustments] is reduced by R60 billion in 2021/22, R90 billion in 2022/23 and R150 billion in 2023/24, with constrained spending growth in the following two years," an MTBPS presentation notes.
Other non-interest spending items are also reduced while funding for buildings and other fixed structures, provincial and local capital grants, and the Infrastructure Fund is protected," the document points out.
"To assist with the consolidation, government has projected tax increases of R5 billion in 2021/22, R10 billion in 2022/23, R10 billion in 2023/24 and R15 billion in 2024/25," it adds, noting that "the aim is to reach a main budget primary surplus by 2025/26".
The 2020 MTBPS notes that this target is expected to result in debt stabilising at 95.3% of GDP in the same year (2025/260).
To achieve the planned wage bill reductions, the government now proposes growth in the public service wage bill of 1.8% in the current year and average annual growth of 0.8% over the 2021 MTEF (medium-term expenditure framework) period.
"Government has not implemented the third year of the 2018 wage agreement. Notwithstanding that the matter is before the labour court, government is actively engaging with labour unions to find a solution to a more sustainable cost of employment," the MTBPS notes.
"Additional options to be explored include harmonising the allowances and benefits available to public servants, reconsidering pay-progression rules and reviewing occupation "specific dispensations," it adds.
According to the MTBPS, implementation risks for expenditure reductions, particularly around the wage bill, is one of the major short to medium-term risks to the fiscal framework.
Other risks include:
*Uncertainty around the speed of the economic recovery - including the medium-term effects of the lockdown, both domestically and internationally (globally, several developed economies have returned to strict lockdowns).
*Additional spending pressures from state-owned companies. Several companies, including South African Airways, are insolvent and have insufficient funds to cover operational expenses.
*Consolidated government spending is expected to total R6.21 trillion over the Medium Term Expenditure Framework period - increasing from R2.04 trillion in 2020/21 to R2.14 trillion in 2023/24, at an average annual growth rate of 1.6%.
This article first appeared on Moneyweb.co.za and was republished with permission.
