Government to cut public sector wages
In a bid to reassure foreign investors, the ratings agencies and the South African public, Finance Minister Pravin Gordhan announced that government does have “a plan” to manage the country’s finances in a “prudent and sustainable” way.
Time will tell if the 2016 national budget will convince doubters that enough is being done to allay investors’ concerns.
“In acting together we can address declining confidence and the retreat of capital,” Gordhan told the National Assembly when delivering his budget speech.
He said the 2016-2017 budget was focused on fiscal consolidation.
“We cannot spend money we don’t have,” he said. “We cannot borrow beyond our ability to repay.”
The budget review states that for every rand of state revenue, 12c goes towards servicing government debt, which is the country’s fastest growing item of expenditure.
“Until we can ignite growth and generate more revenue, we have to be tough on ourselves,” Gordhan said.
The 2016 budget review states that while some of the cost-cutting measures proposed by government will entail “short-term economic discomfort”, the alternatives “were far worse”.
Gordhan said that a “central objective” was to stabilise debt as a percentage of gross domestic product.
“Net national debt is projected to stabilise at 46.2% of GDP in 2017-18 and decline after that,” he said, adding that the 2016-2017 projected budget deficit was R139-billion or 3.2% of GDP.
Government was intensifying its attempts to reduce the budget deficit, targeting a 2.4% deficit by 2018-2019.
In order to achieve this, Gordhan announced expenditure would be cut by R25-billion over the next three years, while tax increases will bring in an extra R18-billion in 2016-2017 and a further R15-billion in each of the 2017-2018 and 2018-2019 financial years.
The budget review says that the majority of cost cuts will come from wage budgets in the public sector.
Breaking down the areas of cost-cutting across government, Gordhan said these would include:
- Restrictions on filling managerial and administrative vacancies, subject to review of human resources plans and elimination of unnecessary positions;
- Reduced transfers for operating budgets of public entities;
- Mandatory use of the new e-tender portal, which would enforce procurement transparency;
- A national travel and accommodation policy and instructions on conference costs, which is expected to reduce spending by R1.6-billion over the medium term;
- New guidelines to limit the value of vehicle purchases for political office bearers;
- Renegotiation of government leases. A recent review suggested that savings from renegotiated leases could be as much as 20% of current expenditure; and
- Centrally negotiated contracts for banking, ICT, health and education services.
The budget review states that from the beginning of April, all appointments for noncritical vacant posts will be blocked by government’s payroll system, pending the submission of revised human resources plans.
“In many cases, these departmental plans will reduce personnel headcounts in administrative and managerial posts, eliminate unnecessary positions and establish a sustainable level of authorised, funded posts,” the budget review states. “Positions for teachers, nurses, doctors, police officers and other critical posts will be excluded from the lock.”
The budget review says that R5-billion has been cut from national departments’ budgets for nonessential goods and services and that cost-containment instructions would be issued shortly.
In his budget speech, Gordhan said the chief procurement officer for government will monitor all state-owned entities’ procurement plans and will review all contracts above R10-million.
He said the office of the chief procurement officer had a mandate to save R25-billion a year out of a total government procurement of R500-billion a year by the third year of the medium-term budget cycle.
Provincial costs pruned
Provincial budget allocations have been cut by a combined R14.9-billion over the next three years, since former finance minister Nhlanhla Nene’s medium-term budget policy statement last year.
Of this, R3.3-billion has been reallocated to fund other priorities and R11.6-billion has been trimmed as part of the government’s austerity drive.
The provincial finance MECs have agreed to a “joint action plan” to address expenditure, Finance Minister Pravin Gordhan said in his budget speech.
Key measures include:
- Containing the costs of administrative personnel, while protecting education and health staff;
- Improving revenue collection;
- Rationalising and closing redundant and underperforming programmes and entities; and
- Intensifying cost-containment measures.
The 2016 budget review states that allocations to provinces and municipalities will grow at 7.3% and 8.1% respectively every year for the next three years.
“Growth in wage costs has been partially offset by a reduction in the number of provincial employees,” the review states.
“Over the period ahead, the filling of vacant posts will be subject to approval and nonessential spending will be curtailed.”
The total number of staff in provinces decreased from 920 826 in 2012 to just under 900 000 at the end of 2015 and further reductions are needed, it says.
Over the medium term, the total provincial government wage bill is expected to rise from 59.7% to 61%, mainly due to the salaries of teachers and healthcare workers, the review says.
Cost-saving measures in the provinces will include reduced spending on catering, communications, venues, facilities and consultants. Details will be outlined in the various provincial budgets, but could include closing down underperforming programmes and reviewing supply chain management processes.
“Provinces are working to minimise reductions to capital budgets to avoid any adverse effects on service delivery,” the budget review states.
Provinces will be allocated just short of R411-billion in the 2016-2017 financial year, with this figure rising to R442-billion in 2017-2018 and R469-billion in 2018-2019.
The biggest allocation this year goes to KwaZulu-Natal, with R88-billion, followed by Gauteng, the Eastern Cape and Limpopo with R80-billion, R58-billion and R49-billion respectively. Bringing up the rear is the Northern Cape with R11-billion.
In addition, conditional grants of R89-billion in 2016-2017, R101-billion in 2017-2018 and R108-billion in 2018-2019 have been allocated to the provinces.
These grants are used to fund specific infrastructure programmes, and the 2016 budget review states that they will be used over the next three years to:
- Expand the comprehensive HIV and Aids grant to cover the treatment of tuberculosis;
- Fund clinic upgrades in national health insurance pilot districts;
- Introduce incentive grants for provinces that employ best practice in conducting road maintenance; and
- Introduce a new conditional grant in 2017-2018 to improve early childhood development services.