Govt spending 36% of GDP – significant reductions needed, says Treasury #MTBPS

Medium Term Budget Policy 2020: Fiscal consolidation to reduce debt and promote growth

South Africa’s public finance spending levels are unsustainably high, with growing government debt, while revenues remain very low.

The 2020 Medium Term Budget Policy Statement (MTBPS) government says it is committed to curbing expenditure. Government has proposed a fiscal consolidation to stabilise debt and promote economic growth.

Government’s consolidated expenditure reached R1.95trn (36% of GDP) in 2020/21. Coupled with low economic growth, this has led to rising budget deficits and unsustainable debt burden.

Consolidated spending is expected to reach R6.21trn over the medium-term expenditure framework (MTEF) period, from R2.04trn in 2020/21. It will further increase to R2.14 trillion in 2023/24, at an average annual growth rate of 1.6%.

National Treasury says to support the stabilisation of debt, significant spending reductions are required. Relative to the 2020 Budget Review projections, total main budget non-interest spending – including other adjustments is reduced by R62.9bn in 2021/22, R92.9bn in 2022/23 and R150.9bn in 2023/24.

“Reducing spending will lower the budget deficit and are weighted towards the wage bill to shift the composition of spending from consumption to investment.”

Furthermore, government says it will implement the principles of zero-based budgeting to address the negative impact of waste and unsustainable incremental increases to spending.

Spending reviews

Over the next three years, government departments are expected to adjust spending priorities taking into account, revised baseline allocations.

Government intends using the findings from spending reviews currently underway to implement the principles of zero-based budgeting in the 2022 MTEF period.

National Treasury has been reviewing government spending to improve efficiency since June 2020. To date, more than 30 spending reviews across all functions have been conducted.

Preliminary findings show reveal many policies are designed, and adopted without considering total costs and affordability.  Multiple institutions share overlapping responsibilities or mandates, leading to duplication of work.  In several high-spending procurement areas, government is overpaying for goods and services. This is happening in information and communications technology and infrastructure services.

In-year adjustments

The total main budget on non-interest expenditure for 2020/21 is increased by R36 billion for the Covid-19 fiscal relief package. National Treasury has made adjustments allocated in the 2020 Budget as follows:

  • R23bn is allocated to Eskom.
  • R5bn is allocated to South African Airways (SAA) for settling its guaranteed debt and interest.
  • R7m is allocated to the Independent Communications Authority of South Africa for the licensing of high-demand spectrum.
  • R5bn is reduced from compensation of employees, mainly from a freeze on salary increases.
  • Additionally, R10.5bn is allocated to SAA to implement its business rescue plan. This was mainly funded through reductions to the baselines of national departments and their public entities, and provincial and local government conditional grants.
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