The head of the Treasury’s budget office has made it clear that the huge revenue overruns of the past two years will not be repeated and the budget in October will have to clamp down on government spending.
“The 2023 medium-term budget is not going to be happy for the spenders,” budget office head Edgar Sishi said at the Reserve Bank conference in Cape Town on Friday.
The Treasury has signalled this in recent weeks to government departments and provinces in the guidelines it issued recently ahead of the medium-term budget, which parliament has scheduled for October 25.
With commodity prices sliding and growth weakening on load- shedding and logistics constraints, the latest monthly figures from the Treasury show corporate tax receipts have declined by more than 20% since a year ago, while the unbudgeted public sector wage settlement has driven up spending. Economists now estimate the deficit and debt ratios will be significantly worse than finance minister Enoch Godongwana projected in his February budget.
In a letter to provinces, which Business Day has seen, the Treasury has warned it faces “unprecedented” challenges for the current fiscal year and has instructed departments and provinces to freeze the hiring of new employees. It has also frozen advertising for new procurement contracts for all infrastructure projects unless approved by the Treasury. It has instructed drastic cuts to spending on travel as well as on catering, conferences and workshops.
The Treasury said it has already had to lower projections of its revenue estimate for the 2023/24 fiscal year, and funding performance in the debt markets has been poorer than anticipated. It said in the letter that an urgent conversation is required in the government on how to restore the public finances to a sustainable path, for the current year and the medium term.
Drastic measures
But despite discussions with directors-general and in the budget council, the Treasury has yet to obtain proposals from departmental accounting officers and provincial treasuries on potential savings for 2023/24. Given the need for urgent action it has little choice but to implement the drastic cost containment measures.
Sishi said on Friday that there is an inability within the government to prevent cyclical spending becoming semi-permanent: once a fiscal stimulus is injected it is very difficult to withdraw, as has been the case with the special Covid relief of distress grant, which has been extended twice.
Sishi noted that in 2022 government spending was 34% of GDP while revenue was 28%. “The question is which policy path will bring those two closer together ultimately. To the extent that it doesn’t, we have a problem,” he said. “We need proper fiscal surpluses as soon as possible.”
“We are now in a place where we can illustrate that higher spending has not translated into higher [economic] growth. We can show that very clearly,” Sishi said.
He emphasised that the impact of government spending should be seen alongside the government’s other actions — “you’re not going to solve the structural problems of the economy by the government simply playing around with the spending numbers. It depends more on the other things government does.”
Sishi wants to see the government put better and more credible fiscal anchors in place. The government implemented an expenditure ceiling a decade ago, but has lifted the ceiling in the face of pressure to up its spending in the face of shocks such as the Covid pandemic.
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