Finance minister Enoch Godongwana has given the assurance the budget cuts to be announced in the medium-term budget policy statement (MTBPS) will be “moderate” and will not exceed normal government underspending in previous years.
There have been fears, given SA’s deteriorating fiscal position of low growth, low revenue and high borrowing costs, that the National Treasury will announce deep budget cuts in the medium-term budget that will harm service delivery.
In comments made to parliament’s finance committee during a briefing on Tuesday by the National Treasury on its 2022/23 annual report, the minister said budget cuts would be below the underspending of R28bn by all spheres of government in 2022/23. In 2021/22, government underspending amounted to R36bn.
His comments come after an open letter to him and President Cyril Ramaphosa by more than 100 academics, economists, professionals and civil society organisations called for a halt to all planned budget cuts.
Godongwana noted there were three ways to deal with a gap between revenue and expenditure — by raising taxes, which is difficult to do in-year; by increasing borrowing, which has already reached a high level and entailed high borrowing costs that have a negative effect on the budget; and by expenditure cuts.
“We have been quite careful as we are going to show on the 1st [November, when the MTBPS will be tabled in parliament] in dealing with expenditure cuts,” the minister said.
“Our approach has been moderate of combining expenditure cuts but [bumping] up some borrowing, but in a sustainable way.
“I can assure you as we are going to demonstrate on 1st November that expenditure cuts are even below that normal underspending.”
The Treasury has issued guidelines to government departments on how they can cut spending. Government exceeded the expenditure provided for in the February budget, which did not take into account the public sector wage agreement that added R37.4bn to spending.
Signatories to the open letter, who include NGOs such as the Institute for Economic Justice, the Budget Justice Coalition and the Black Sash, reject the notion of an imminent fiscal crisis, and oppose the Treasury’s attempts to force government entities and departments to cut spending significantly.
They say that the budget must be used to advance economic growth and development.
MPs expressed concern over the dispute between the Treasury and the auditor-general’s (AG) office over the qualification of Treasury’s financial statements because of the non-disclosure of what the AG says is fruitless and wasteful expenditure in previous years on the integrated finance management system (IFMS), which has so far cost R2.6bn. The Treasury has considered taking the AG to court over the matter.
Treasury’s chief director of strategic planning, monitoring and evaluation, Laura Mseme, said progress was being made in addressing the dispute with the AG. She said the development of the IFMS depended on an executive decision on a cloud solution and she was confident this would lead to implementation of the project.
However, Godongwana noted the Special Investigating Unit (SIU) had made findings on the IFMS and he said it “is high time that this offers us an opportunity to do away with the whole process. The IFMS has been a major problem. The sooner I get rid of it ... the better.” He agreed with MPs that a standoff between the National Treasury and the AG was not healthy and needed to be sorted out.
The SIU found the award of the IFMS contract to Oracle was irregular and has referred the matter to the National Prosecuting Authority (NPA).
Treasury director-general Duncan Pieterse said the Treasury had had to take a step back and reflect on the future of the IFMS in light of the SIU’s findings. He stressed the importance for the whole of Treasury — as the setter of accounting standards laid down in the Public Finance Management Act — being aligned with the AG as the enforcer of these standards in the interpretation of these standards.
Pieterse said the government had made progress in meeting the requirements of the Financial Action Task Force (FATF) that had greylisted SA earlier in 2023. A number of identified deficiencies, including those related to money-laundering, had been upgraded in July from not being addressed to being partly addressed.
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