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 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,” a MTBPS presentation notes.
“The largest share of reductions falls on compensation,” it adds.
However, an exact updated figure on how much National Treasury wants to slash off the state’s wage bill is not disclosed. In the February main budget, Mboweni mentioned a cut in the government wage bill of some R160 billion over three years.
Commenting on the so-called compensation adjustments during his medium-term budget speech on Wednesday, Mboweni called for “a new consensus on public-sector employee compensation” as part of the country’s post-pandemic rehabilitation.
“Our compatriots in the private sector have made sacrifices and even negotiated salary cuts to keep businesses afloat,” noted the finance minister.
“Over the past five years, public sector employee compensation grew by 7.2% a year on average – well above inflation. Over the next five years, it will need to grow much, much slower,” he said.
“Consideration should be given to the proposal for across-the-board compensation pay reductions to management-level positions, across national, provincial and municipal governments, state-owned entities all other senior public representatives,” Mboweni added.
To achieve the planned wage bill reductions, 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.
“Furthermore, the budget guidelines propose a wage freeze for the next three years….
“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.
“Both the upcoming decision on the final year of the current wage agreement and the upcoming wage talks pose significant risks to the expenditure ceiling,” it states.
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.
At least one public sector union was not interested in a wage freeze. Mugwena Maluleke, general secretary of teachers’ union Sadtu, told Reuters that freezing civil servants’ pay was “not implementable”. “This is a neo-liberal onslaught on the workers … who are basically on a daily basis dealing with this virus in order to serve our people.”
Meanwhile, the 2020 MTBPS highlights presentation document also notes that although other non‐interest spending items are also reduced, funding for buildings and other fixed structures, provincial and local capital grants, and the Infrastructure Fund is protected.
“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 states, adding that “the aim is to reach a main budget primary surplus by 2025/26”.
The presentation notes that this target is expected to result in debt stabilising at 95.3% of GDP in the same year (2025/26).
Consolidated government spending is expected to total R6.21 trillion over the MTEF 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%.