Government reigns in public service spending

Wednesday, October 24, 2018

Government will maintain its expenditure ceiling and contain the public service compensation budget as a push is made to retain fiscal discipline, the National Treasury said on Wednesday.

In a bid to achieve a balanced fiscal consolidation – including stabilising debt and narrowing the budget deficit, the National Treasury said it would reprioritise funds from non-performing areas in a move that will enable government to support President Cyril Ramaphosa’s recently announced stimulus package.

This comes as the National Treasury’s Medium Term Budget Policy Statement projects revenue collection lower than the 2018 budget estimates that were announced in February.

“The expenditure ceiling will be maintained for the next two years and is set to grow at 1.5% in real terms in 2021/22 — largely in line with average real GDP growth over the past decade.

“Non-interest expenditure remains broadly unchanged as a share of GDP over the medium term. In real terms, non-interest spending grows by an average 1.9% per year. This includes a contingency reserve amounting to R7 billion in 2019/20, R8 billion in 2020/21 and R12 billion in 2021/22,” the National Treasury said.

The National Treasury said reigning in spending would be made possible by implementing several policy measures, including reprioritizing funds from non-performing areas amounting to R32.4 billion over the next three years.

“Funding of non-performing and under-performing areas has been reallocated, baselines have been reduced, the contingency reserve has been drawn down and provisional allocations have been adjusted.

“Reprioritised resources support the President’s economic stimulus and recovery plan, and some non-discretionary and infrastructure spending pressures. In addition, R14.7 billion has been shifted within grants for upgrading informal settlements,” the National Treasury said.

Addressing an embargoed media briefing earlier, Finance Minister Tito Mboweni said: “A lot of it is about reprioritisation of expenditure and pulling things together”.

In 2016, government introduced legally binding compensation ceilings for national departments.

These ceilings remain unchanged over the three-year period ahead, with departments expected to absorb any shortfall within their current allocations.

DPSA to help departments contain wage budgets

The National Treasury said, meanwhile, that the Department of Public Service and Administration will assist departments facing increased wage cost pressures.

This comes as recently signed three year public service wage agreement – comprising a cost-of-living adjustment and an extension of the housing allowance to cover spouses – pushed the wage costs to R242.7 billion over the next three years, exceeding the R212.5 billion budgeted for salary increases and other conditions of service.

“Government’s current wage bill accounts for about 35% of consolidated spending. No additional funding is available over the 2019 MTEF period. Instead, departments need to fund shortfalls by adjusting within their compensation baselines.

“This means increasing efficiency, and carefully managing overtime and performance incentives,” the National Treasury said. –