Expenditure ceiling to be breached by R3.9 billion

Wednesday, October 25, 2017

Government spending is expected to breach the expenditure ceiling by R3.9 billion this year, National Treasury said on Wednesday.

This comes after expenditure ceilings were introduced in the 2012 Budget to enable government to manage departmental spending levels in the context of a constrained fiscal framework.

Allocations made over a three-year period, also referred to as the medium term, provides an agreed-upon upper limit within which departments prepare their budgets.

Ahead of Finance Minister Malusi Gigaba delivering the Medium Term Budget Policy Statement (MTBPS), National Treasury said the expenditure ceiling has been lowered by R7 billion for 2018/19 and R15 billion for 2019/20 as a result of reductions to the contingency reserve. 

“Interest payments are excluded from the expenditure ceiling. So are payments for financial assets funded by the sale of assets in the same year. This principle was applied to the R23 billion allocation to Eskom in 2015, which was financed by the sale of government’s Vodacom shares. 

“Expenditure is expected to breach the ceiling by R3.9 billion in the current year. This is the result of large appropriations for South African Airways (SAA) and the South African Post Office (SAPO). [Combined], these allocations amount to R13.7 billion.

“Government is considering the disposal of assets to offset these appropriations. Should such disposals take place, the breach will not occur.”

National Treasury said to offset revenue shortfalls and reduce borrowing, the contingency reserve has been pared down to R3 billion in 2018/19, R5 billion in 2019/20 and R8 billion in 2020/21.

The lowering of the contingency reserve leaves government with little room to manoeuvre should risks to the expenditure ceiling materialise.

“Moreover, further reductions in the ceiling may be required to stabilise national debt. A Presidential committee will consider options in this regard to be tabled as part of the Medium Term Expenditure Framework tabled with the 2018 Budget.”

Medium term risks

National Treasury said various risks and pressures need to be taken into account over the medium term, including:

• Additional spending commitments may emerge from policy processes under way. Government is evaluating the implications of providing fee-free higher education and training to poor and middle-income students.
Other policy commitments include the National Health Insurance (NHI), proposals in the Defence Review, improved Early Childhood Development (ECD), accelerated land reform and several large infrastructure project proposals.

• The inflation outlook has been revised down compared with the 2017 Budget, relieving pressure on inflation-linked expenditure, such as the wage bill. However, public-sector remuneration budgets pose a large and imminent risk, with the possibility that some national and provincial departments will exceed compensation ceilings. 

• A new civil service wage agreement, in which salary increases exceed consumer price inflation (CPI) and without headcount reductions, would render the current expenditure limits difficult to achieve. 

• Several State-owned companies persistently demonstrate operational inefficiencies, poor procurement practices, weak corporate governance and failure to abide by fiduciary obligations. – SAnews.gov.za

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