Finance Minister Tito Mboweni plans to slash expenditure by at least R150bn over the next three years as part of his strategy to stabilise public finances.
Releasing the 2019 Medium-Term Budget Policy Statement (MTBPS) in Parliament Wednesday, the minister indicated that the “sweet spot” for stabilizing the country’s finances would involve expenditure cuts of closer to R240bn over the period, which, he said would be difficult to achieve.
Mboweni said the significant tax increases over the past several years has only moderately boosted tax revenue, and given the size of the required adjustment, “additional tax measures are under consideration.”
Mboweni told MPs the expenditure cuts were outweighed by the need to ensure sustainable public finances while ensuring intergenerational fairness.
To stabilise debt, government would target a primary balance, excluding proposed further fiscal support for Eskom, by 2022/23 – a goal that would require revenue to equal noninterest expenditure in that year.
Spending reductions of R21bn in 2020/21 and R29bn in 2021/22 have already been identified, mostly in the areas of goods and services, and transfers.
Large additional adjustments, exceeding R150bn over the three-year MTBPS period, would be required, however, and Mboweni said announcements regarding these further measures would be made in the 2020 Budget.
He also said that the National Treasury would engage with the Department of Public Enterprises on whether all the assets held by State-owned enterprises should be retained, arguing that it might be time to engage in some “basic portfolio management.”
The public sector wage bill is another key area of focus, with the MTBPS stating that a decline in the growth in the public-service wage bill will be required to reduce the pressure on goods and services and infrastructure.
The document also states that, to reduce future transfers, a sustainable plan for State-owned companies is required – one that should include the disposal of noncore assets and options for private-sector participation.
Mboweni argued that a failure to act to stabilize the fiscal position would have grave consequences for South Africa, whose debt-to-GDP ratio would rise to 71.3% in 2022/23 in the absence of a move towards fiscal consolidation.
In 2019/20, the country’s debt-to-GDP ratio would already breach 60%, representing a material deterioration from the 56.2% level projected in February.
The rise to 60.8% is largely attributable to the additional support being provided to debt-laden power utility Eskom, which will receive transfers of R49-billion in 2019/20 and R56-billion in 2020/21.
Gross national debt will exceeded R3tn in 2019/20 and rise to R4.5tn in the next three years.
“Stabilisation involves difficult decisions that imply sacrifices by all of us. Slowing growth in the compensation bill and additional revenue measures will be needed,” Mboweni said.
The Minister’s austerity proposal comes amid a deterioration in public finances since he delivered the 2019 Budget in February, as well as a downward revision to government’s growth and revenue collection forecasts.
Mboweni also used the platform of his MTBPS address to release ‘Version 2’ of his growth strategy document, titled ‘Economic transformation, inclusive growth and competitiveness: Towards and Economic Strategy for South Africa’.
The document, which has been generally praised by business and slammed by labour, focuses primarily on several microeconomic reforms that could stimulate higher levels of growth and job creation.
Describing it a “living document” rather than “dogma”, Mboweni said the document had given new life to the 2030 Vision contained in the National Development Plan.
“In our current context, growth-enhancing initiatives are very important,” Mboweni said, quipping that he did not mind being labeled as a neoliberal as long as the interventions taken were leading to growth.