The government’s budget is stretched to its limit and the new finance minister, Nhlanhla Nene, has put his foot down on spending, leaving little room to manoeuvre, although winners and losers have still emerged in the medium-term budget policy statement.
The budget has indeed come a long way from the R378-billion it had to its name in the 2004-2005 financial year. This financial year – ending in 2015 – the allocation is significantly larger at R1.13-trillion.
But growth has subsided and Nene has made it clear that the core value of social expenditure programmes must be maintained and capital investment needs to be sustained. The budget, instead, claims to reinforce the Âconcept of cost-containment and pays particular attention to reducing line items that are not critical for service delivery or that do not support the policy statement’s objective.
“Governments everywhere face difficult choices because the gap between what is required and what can be afforded is very wide. And so we have to be steadfast in our resolve to do more, together, with less,” said Nene in his first budget speech as finance minister.
The policy statement said restoring sustainability to the fiscus while protecting core social and economic programmes requires a combination of spending and revenue adjustments over the next two years. “Moderating expenditure growth, combined with tax measures to increase revenue, will improve the fiscal position by R22-billion in 2015-2016 and R30-billion in 2016-2017,” the statement read. Additionally, “the expenditure ceiling will be lowered by R10-billion in 2015-2016 and by R15-billion in 2016-2017.”
Exactly how revenues will be bolstered through tax reform is yet to be seen, but it is clear where the cuts will start.
End of an era
Times will be tough in the offices of state departments because government budgets for nonessential goods and services will be frozen and some planned expenditure, such as travel, advertising and catering, has been cut substantially.
Across national departments, planned expenditure on travel and subsistence has been cut by R555-million. Advertising and communications budgets have been reduced by R240-million. Lower spending on consultants will generate savings of R370-million, while spending on venues and catering will be R150-million lower than previously planned.
It would appear government employees won’t get the increases they may have expected, despite some unions demanding as much as a 15% increase. As the policy statement put it: “Restraining the growth of government’s wage bill is an important aspect of this rebalancing [of the budget deficit]” but that “if increases in public sector wages significantly outpace inflation, government will be forced to curtail service delivery – either by reducing social spending or capital budgets, or by trimming staff numbers.”
Further government personnel headcounts will be frozen for the next two years. Any increase in personnel will be funded from existing allocations. The permanent withdrawal of funded vacancies is under consideration with only “natural attrition” to create space for new appointments. But “exceptions will be considered for critical positions, with the onus on departments to justify exceptions”.
The priorities
The government proposes expenditure growth of 7.6% a year over the next three years, reaching R1.55-trillion by 2017-2018, and the largest allocations over the three-year spending period ahead are to basic education (15%), health (11%) and social protection (11%).
Nene said the medium-term objective is to ensure public spending promotes growth and three priority areas would be targeted.
First, the government will work with development finance institutions to increase investment in the urban landscape and expand the municipal debt market.
Second, support for export competitiveness and job creation will be reinforced. “This includes over R18-billion for manufacturing incentives, the establishment of special economic zones and the employment tax incentive,” said Nene.
The government will give priority to expanding the skills base and R800-billion is proposed over the medium term for education and skills development. “Post-school education and training has received the fastest-growing share of the budget over the past three years and will continue to expand,” he said.
Function shifts move money
The presidency’s budget at the beginning of the financial year was double that of last year, but the adjustment has slashed it in half again, from R1.17-billion to R652-million, as certain functions, including the National Youth Development Agency programme, move to the department of planning, monitoring and evaluation. The international marketing and communication programme will move to the new department of communications with effect from April 1 2015.
This is despite Minister in the Presidency Jeff Radebe’s recent bid for a huge medium-term departmental allocation increase amounting to more than R1-billion by 2017.
Human settlements saw the biggest loss – R1.1-billion has been transferred, along with its sanitation function, which has moved to the department of water and sanitation.
Although no functions, or budget, have yet been shifted from the department of communications to the newly formed department of telecommunications and postal services, communications has received an upward budget adjustment of more than R643-million, R620-million of which is to support the broadcast digital migration programme.