Cape Town – Finance Minister Pravin Gordhan has taken a tough stance to bring about fiscal stability by announcing wide-ranging cost cutting measures that seek to curb wasteful spending and restore confidence in the local economy.
Ahead of tabling the 2013 Medium Term Budget Policy Statement in Parliament on Wednesday, Gordhan told journalists that in order to restore fiscal stability, Cabinet has taken difficult decisions in a bid to curb wasteful consumption and reprioritise spending on infrastructure investment and more important government priorities.
Gordhan’s stance will send a message to citizens, financial markets and ratings agencies that signals that while the economic forecast is expected to grow, discipline when managing the public purse is the back bone of economic stability.
“On the expenditure side, we are maintaining a rate of 2.2% but we are still maintaining the right kind of discipline on the government side by maintaining the expenditure ceiling that we have talked about before,” he said.
As part of the radical measures to curb wasteful consumption, Gordhan said public servants will no longer be given credit cards for official and personal use, and those already in possession of credit cards would be told to discontinue using them with immediate effect.
At the back of the Auditor General’s findings that several government departments spent billions of rands on consultants, Gordhan said Cabinet had also decided that all departments across all spheres will be instructed to minimise the use of consultants.
Other measures will include restrictions on air travel, car hire, accommodation, catering, entertainment and conference budgets.
Gordhan said the measures – which government plans to introduce by December 1 – will result in billions of rands of savings.
Cabinet has also taken a decision to review the amount of money spent on ministerial cars. The minister announced that all cars purchased by government ministers will have to be more or less the equivalent of a BMW530 series.
His announcement will set the scene for next year’s budget, which is expected to focus on expenditure on infrastructure investment while not much will be allocated to consumption.
Gordhan’s announcement also comes against the backdrop of concerns raised in his 2012 February budget about the increasing public service wage bill.
He said government was committed to rebuilding the fiscal space by stabilising and then reducing the ratio of public debt to Growth Domestic Product.
This, he said, will allow government to respond to future economic shocks by bringing down spending on debt-service costs and creating countercyclical borrowing opportunities.
Parliament and members of the public would be invited to play the role of a watchdog to monitor compliance, said Gordhan, adding that similar regulations would be applied at the local government sphere.
He said pressures emanating from the public sector wages were a threat to fiscal stability.
Over the next three years, the government – which remains the biggest employer in the economy – would ensure that growth in employment and earnings does not threaten the expenditure ceiling.
Since 2005, more than 250 000 personnel have been added to the national and provincial payroll database, with most appointments coming from education, health care and the criminal justice departments.
Currently, over R350 billion is spent on government salaries.
The minister said there was a growing concern about the managerial and administrative staff increase across government.
In a bid to maintain staff numbers at a constant level, senior officials will be asked to provide a compelling reason as to why there is a need to hire more personnel.
To this end, the National Treasury and the Department of Public Service and Administration will work hand-in-hand to monitor wage bill trends and to enforce discipline in hiring.
Government was also working towards reaching a sustainable public-sector wage agreement.
Gordhan has, in the meantime, appointed a Tax Review Committee to look at how the country’s tax system can play a role of promoting inclusive economic growth, create jobs, development and contribute to fiscal sustainability.
Gordhan projected the country’s economy to grow by 1.4% to 3.5% over the next three years.
The Gross Domestic Product (GDP) had slowed down from 3.5% in 2011 to 2.5% in 2012 before being revised down by the Reserve Bank to 2.1% in 2013.
The combination of austerity measures, economic growth and how the government has restored fiscal stability through fiscal policy reforms over the past four and a half years should send a message to ratings agencies that they should do their homework before rating the country’s outlook.
Tabling his Medium Term Budget Policy Statement, Gordhan anchored his speech on the National Development Plan, the government’s framework of eliminating poverty, creating jobs and achieving outcomes on the government’s priorities.
He said the mini budget recognised the need to implement the plan and monitor it – year in and year out.
“In many cases, it builds on initiatives that were already under way. In other areas, new programmes or reform proposals are being introduced,” he said.
Gordhan also said that the Consumer Price Index (CPI) was expected to average 5.9% in 2013, and to remain within the 3 to 6% target band next year.
“A trade deficit of 2.6% of GDP was recorded in the first half of 2013, contributing to a deterioration in the current account of the balance of payments to about 6.5% of GDP.
“Muted economic growth has translated into limited gains in job creation. The quarterly labour force survey indicates an increase in employment of about 275000 in the year to July, but formal non-agricultural employment growth has been slow,” he said. – SANews.gov.za
