A bulk of National Treasury’s fiscal consolidation measures will come from the public service wage bill, the department said on Wednesday.
This comes as government provided one of the largest fiscal responses to the COVID-19 pandemic among developing countries, resulting in consolidated government spending reaching a record 41.7 percent of GDP, compared with 29.6 percent during the economic meltdown in 2008/09.
“Narrowing the budget deficit and stabilising the debt-to-GDP ratio requires continued restraint in expenditure growth. These efforts remain on course,” the National Treasury said in documents ahead of the tabling of the Budget in Parliament.
“Compared with the 2020 Budget, main budget non-interest expenditure will be reduced by R264.9 billion, or 4.6 percent of GDP, over the MTEF period. Most of these adjustments are to the wage bill. Excluding compensation reductions, consolidated non-interest expenditure grows by an annual average of 0.4 percent in real terms.”
The National Treasury said public service compensation absorbed 41 percent of government revenues in 2019/20 and 47 percent of revenue in 2020/21.
“Allowing the wage bill to continue rising in line with recent trends is not sustainable. It would require a substantial reduction in funding for capital investment, and critical public goods and services.”
In December 2020, following government’s decision to not implement a wage increase in 2020/21, the Labour Appeal Court reaffirmed Treasury’s constitutional role in safeguarding the public finances.
“In this regard, the approach to future wage negotiations will align with the fiscal position and prevailing economic conditions. The 2021 Budget proposes a significant moderation in spending on the consolidated wage bill, which grows by an average of 1.2 percent over the medium term,” said the department.
Treasury said tax revenue estimates for 2020/21 are R213.2 billion below the 2020 Budget estimate, but R99.6 billion above the 2020 MTBPS estimate.
Revenue growth is expected to slow over the medium term.
“The fiscal framework reduces growth in the wage bill and the share of spending on wages, while sustaining real spending increases on capital payments, specifically for buildings and other fixed structures.
“The consolidated budget deficit, which reaches 14 percent of GDP in 2020/21, narrows to 6.3 percent by 2023/24.
“Government is projected to achieve a primary surplus in 2024/25 – meaning that total revenue will exceed non-interest expenditure – and stabilise the debt ratio at 88.9 percent of GDP in the following year.”