Budget Deficit – The Warning Signs Are Clear: We are in for Some REAL Tough Times

At the beginning of September National Treasury revealed that South Africa’s budget had moved to a deficit of R143.8 billion for July, the largest since 2004 and wider than the R115.5 billion forecast by economists.

This follows a 15 August 2023 Cabinet meeting, when it was noted that the economic growth outlook has worsened significantly relative to expectations outlined in the 2023 Budget, given the impact of more intense loadshedding and freight and port logistical constraints, amongst other factors. In addition, the fiscal outlook was negatively affected by the higher-than anticipated wage settlement.

This low economic growth has resulted in deteriorating revenue collection and funding conditions since the tabling of the 2023 Budget. To date, tax revenue under-collection has worsened, already resulting in a lower projection of the revenue estimate for 2023/24.

Funding performance through the debt markets has also been poorer than anticipated over the past few months. As a result, National Treasury says that South Africa now faces unprecedented challenges for the current 2023/24 financial year.

These lower funding collections require an urgent conversation in government on how to restore the public finances to a sustainable path, both for the current 2023/24 financial year, as weil as for the coming 2024/25 medium-term expenditure framework (MTEF).

Cabinet resolved that the National Treasury should work with all departments and relevant stakeholders in national government, as weil as with provinces, to identify immediate measures to reduce the level of government spending to improve spending efficiency and maintain a sustainable fiscal framework.

Addressing the need for urgent action, the National Treasury proposed adopting stringent measures in respect of budget implementation and budget adjustments, for the Medium-Term Budget Policy Statement.

As a consequence heads of national departments have been instructed to implement the following cost containment measures:

1. Freeze the hiring of new employees except if: an employment offer has been made, or approved by the National Treasury together with the Department of Public Service and Administration, after considering the submission of the relevant head of department that it is a critical post.
2. Freeze the process of advertising new procurement contracts for all infrastructure projects, unless approved otherwise by the National Treasury.
3. Drastically reduce spending on travel by freezing all non-essential travel unless wholly or partially funded by non-governmental resources (such as multilateral institutions or donor agencies). In addition: (a) Each head of department should provide the National Treasury a list of essential travel planned for the 2023/24 fiscal year by 15 September 2023. (b) Essential travel could include, for example, parliamentary responsibilities for the executive and accounting officers and authorities or their representatives. (c) Routine travel costs for operational reasons involving no overnight stay, are excluded.
4. Freeze spending on catering, conferences, workshops and other related goods and services that have not yet been contracted.
5. Ensure that recommendations from the spending reviews are fully implemented by 31 March 2024, unless otherwise agreed with the National Treasury.

Items (1), (2), (3) and (4) also apply to all national public entities that receive transfers from the National Revenue Fund, unless specifically exempted by the National Treasury. In addition, all public entities that receive transfers from the National Revenue Fund, are advised to maintain salary levels at current levels for the 2023/24 financial year.

Provinces are also being advised to introduce the same measures for their departments and public entities. National Treasury will soon engage with the South African Local Government Association (SALGA) and municipalities, to implement similar measures.

The National Treasury has acknowledged that these measures alone will not by themselves fully restore fiscal sustainability, and Treasury has pledged to work with all national departments and public entities, as part of the coming adjustments budget process, to identify further measures to consolidate budgets.

The National Treasury says these measures can be relaxed as soon as economic and fiscal conditions improve. Given the fiscal conditions, Treasury has requested all affected institutions to implement these measures from 15 September 2023.

BUT, it is not only government departments that are being asked to take some pain…

Finance Minister Enoch Godongwana has hinted about tax increases to fund the government’s growing expense bill saying that South Africa’s economic growth and tax revenue have been hampered by the energy crisis, with record load-shedding levels and logistics problems. If the current pace of underperformance in tax collections is sustained throughout the year, gross tax revenue will be R82 billion lower than the February projection.

Godongwana said there are three ways to address the revenue shortfall and fiscal deficit.

1. Increase taxes, which is could prove difficut ahead of an election year.
2. Borrow more money.
3. Budget cuts.

Editor: I find it difficult to swallow the fact that Government blames our present predicament largely on loadshedding (the blame for which can be laid squarely at Goverments door) and now has the temerity to make us pay again for their incompetence!