The macrofiscal position presented in the February budget had changed “adversely and significantly” and the “risks into the future remain high”, finance minister Enoch Godongwana said in parliament on Tuesday.
A major contributor was the higher than expected public sector wage increase agreed to with trade unions earlier this year. High inflation also increased the government’s borrowing costs.
Godongwana said in a speech on the Treasury budget vote in a mini-plenary of the National Assembly that headcounts in the public sector would have to be restricted in a bid to save R37.4bn and cushion the blow of the wage agreement on the fiscal framework.
In terms of the two-year deal, government employees will get a 7.5% increase for the first year, which started on April 1, followed by an increase in line with consumer price inflation for the second year. In practice the first year’s increase is just 3.3% because it wraps in the two-year-old R1,000 monthly cash gratuity, which the government had intended to fall away once a new settlement was signed.
The agreed increase is still much higher than the 1.6% for 2023/24 that was pencilled in his February budget. It is one of the downside risks to the fiscal outlook outlined in the budget that has materialised. “The result is that the macrofiscal position presented in the budget has changed adversely and significantly. The risks into the future remain high,” Godongwana said.
Identifying savings could entail a rationalisation of staffing levels and the deployment of headcount management strategies to curb the wage bill. Trade-offs would be necessary.
“Simply put, as I indicated in the budget speech, a higher-than-budgeted wage agreement means less space for the recruitment of staff. The Treasury is working with the department of public service & administration [and] the provinces, to co-ordinate the process of identifying ways of restricting headcounts, among others, so that the ... wage increase can be recouped.”
The government spends about one-third of the budget on the salaries and benefits of public servants and political office bearers. In 2025/26, the public sector wage bill is set to rise to more than R760bn.
Godongwana reaffirmed the Treasury’s commitment to restore public finances to a sustainable footing by stabilising debt, promoting growth and cushioning the economy from financial and other shocks.
But among the developments since the budget are stubbornly high inflation that has pushed up the cost of living for households and the government’s rising borrowing costs.
He referred to the IMF’s global outlook that the world was “entering a perilous phase during which economic growth remains low by historical standards and financial risks have risen, yet inflation has not yet decisively turned the corner”.
More than half of the Operation Vulindlela reforms are completed or on track to be completed within the next 12 months.
Godongwana said the spending reviews done by the Treasury for the past three years highlighted potential inefficiencies of R27bn and proposals included closure or scaling down of programmes and reallocating spending to some of the most pressing priorities.
“Our efforts to get the country off the greylist are well under way,” he noted.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.