The government does not intend to cut spending on infrastructure and social services, finance minister Enoch Godongwana said in parliament on Wednesday.
Godongwana also said that the government’s strategy of fiscal consolidation on its own would fail if there was no economic growth and that the National Treasury’s economic growth forecasts are “credible”.
The minister was answering questions by MPs in the National Assembly in the context of plummeting tax revenue and the Treasury’s notice to departments to cut budgets. There have been concerns that these cuts may affect the payment of social grants, especially the Covid-19 social relief of distress grant.
Godongwana said the government’s commitment to increase government investment remains but spending might have to be curtailed if there is no capacity to spend the money this year. Most government underspending occurs in capital budgets. He said this commitment will be reconfirmed in the medium-term budget policy statement that will be tabled in parliament on November 1.
“There is absolutely no rationale for the fear that the commitments to the investment in infrastructure will be curtailed,” Godongwana said. “What we want to make sure of is that there is prudent use of these resources in such a manner that we can be able ... to contain some of the programmes that are not likely to make an impact, and reprioritise spending to programmes that are likely to have an impact. That generally is the strategic approach we have taken.”
On social services, Godongwana said the government has “no intention of having a negative impact” on it.
Efforts will be made to protect labour-intensive departments — health, education and the police — from the effects of the R37.4bn wage settlement as they will be most affected.
Outlook worsened
Godongwana noted that the Treasury issued budget guidelines for the medium-term expenditure framework to departments in June. These stressed that savings, reprioritisation and an extension of fiscal consolidation measures were necessary. There have therefore been advice and requests for greater spending control for some time, he noted.
He said the economic growth outlook has worsened significantly relative to expectations in the 2023 budget forecasts due to load-shedding and logistical constraints. Tax revenues have been lower than expected and borrowing costs are higher.
Yet Godongwana said the Treasury’s forecasts generally compare well with other ones, including those of the private sector and the Reserve Bank.
“The National Treasury’s growth estimates [the budget forecast for 2023 was 0.9%] still remain broadly credible,” the minister said.
The head of the Treasury’s budget office, Edgar Sishi, said recently that the medium-term budget policy statement will have to clamp down on government spending.
Due to commodity prices sliding and growth weakening, corporate tax receipts have plunged while the unbudgeted public sector wage settlement has driven up spending.
Economists now estimate the deficit and debt ratios will be significantly worse than Godongwana projected in his February budget. They expect a shortfall in government revenue of R20bn-R80bn for the current year, with the monthly data suggesting a full-year shortfall of about R50bn.
The Treasury 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.
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