Stabilising Public Finances

Stabilising Public Finances

Written on 11/01/2019
Nolands Team


Large fiscal deficits incurred over the years, although providing short-term support to the economy, have not resulted in commensurate long-term economic growth. This has led to sharp increases in the government’s debt-to-GDP ratio, which currently stands at 60.8 per cent, and is expected to rise to 71.3 per cent in 2022/23. The growing proportion of limited public resources spent on interest payments are crowding out spending on social and economic investment.


Although options to stabilise the fiscus are becoming increasingly limited, The MTBPS suggest the following three core focus areas:

 

  • Reducing the public service wage bill, which currently accounts for 46 per cent of tax revenues. Salaries for public servants have increased by 40 per cent in real terms over the last ten years. Options considered include (i) pegging cost-of-living adjustments at or below CPI inflation, (ii) halting automatic pay progression and (iii) reviewing occupation-specific dispensation for wages.
  • Additional tax measures are being considered, despite several years of increases. Currently the tax-to-GDP ratio is 26.4 per cent, close to the peak reached in 2007/08, leaving little room for expansion. The 2019 Budget has already stipulated a R10 billion in tax increases for 2020/21, and this will be expanded in the 2020 Budget.
  • Reduce future transfers to state owned enterprises, including the disposal of non-core assets and options for private sector participation.
  • Improved spending efficiency and reduction of waste. Some of the mechanisms include the consolidation of entities and regulatory agencies, disposal of unused land and other assets, and the limitation of claims against the state (including a review of medico-legal claims and prioritising the implementation of the Road Accident Benefit Scheme). 

Underpinning all of these is an effort to combat corruption and improve existing revenue collection. This will be enacted through a reprioritisation of funding tabled to the National Prosecuting Authority of an additional R1.3 billion, and the South African Revenue Services of an additional R1 billion for the period from 2019/20 to 2022/23.


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