Fiscal consolidation needed to ensure marvelous financial health

Government will adopt a “prudent fiscal stance” which will aim to balance spurring economic growth, supporting society’s most vulnerable groups, stabilising public finances and reducing economic and fiscal risks.

This tough balancing act was revealed in the Medium Term Budget Policy Statement (MTBPS) released on Wednesday.

“A balanced fiscal stance will…also support higher levels of private-sector investment and employment. In the context of limited resources, this requires prioritisation. Over the next three years, the fiscal framework supports strong control of the public-service wage bill, protecting crucial frontline services and implementing efficiency measures.

“Government’s commitment to restoring the health of the public finances means that the debt-to-GDP ratio is still forecast to stabilise in 2025/26 – although at a higher level than projected in the 2023 Budget,” the document read.

The MTBPS laid out how it will implement fiscal consolidation measures including reduced spending, “efficiency measures across government and moderate revenue increases”.

“The proposed fiscal consolidation measures will be targeted, leaving some functions with funding levels similar to the 2023 Budget, and will also maintain the social wage. Over the medium term, these measures will include the reconfiguration of government, with the merging or closure of public entities resulting in a reduction in transfers to such entities.

“Together, these targeted measures are expected to result in savings and long-term gains from improvements in the efficiency of public spending and budget allocations. This is key to managing the public finances in a prudent and responsible way, and will also support longer-term economic growth.”

The key elements of government’s medium-term fiscal strategy as set out in the MTBPS include:

• Realising a primary budget surplus in the current year, meaning that revenue will exceed non-interest spending for the first time since 2008/09. The surplus will grow over the medium term, narrowing the budget deficit and allowing debt to stabilise by 2025/26.
• Stabilising debt to enable government to arrest the trend of rising debt-service costs. Debt-service costs will peak as a proportion of revenue in 2026/27.
• Targeting spending revisions to protect critical frontline services. Baseline budgets for basic education, health and the police are projected to grow in nominal annual average terms, although below consumer price index (CPI) inflation, over the 2024 medium-term expenditure framework (MTEF) period. Spending on the community and economic development functions will grow by 4.5 per cent and 6.2 per cent, respectively. In contrast, spending on general public services grows marginally over the medium term.
• Implementing a reconfiguration of government functions, as outlined in Chapter 1, in line with the President’s commitment during the 2023 State of the Nation Address.
• Keeping the composition of spending broadly in line with existing policy. Over the medium term, the wage bill continues to grow on average below CPI inflation. Over the next three years, capital payments and transfers will grow by a nominal annual average of 8.4 per cent, while consolidated spending on the wage bill, goods and services, and current transfers and subsidies grows by 3 per cent. Government is implementing measures to improve the financing and execution of infrastructure projects.
• Introducing moderate revenue increases to support fiscal consolidation, while limiting the negative effects on the economy.
• Developing novel fiscal anchors to ensure sustainable public finances. Work on these is under way, and an update will be provided in the 2024 Budget.  – SAnews.gov.za