Finance Minister Nhlanhla Nene on Wednesday announced firm measures to check South Africa’s worsening debt outlook, warning that the country has reached an economic turning point.<\/p>\n
The plan includes capping government spending and raising tax revenues, he said in the 2014 Medium-Term Budget Policy Statement (MTBPS), tabled at Parliament.<\/p>\n
“In response to a worsening debt outlook, government proposes a fiscal package that reduces the expenditure ceiling and raises tax revenue over the next two years.”<\/p>\n
The minister dismissed suggestions that he was tabling austerity measures as “an exaggeration”, and said in the Medium-Term Budget Policy Statement (MTBPS) that while spending ceilings were being lowered, the country’s budget would continue to grow in real terms.<\/p>\n
“Government will spend R4.4 trillion over the next three years.”<\/p>\n
Nene said GDP growth was now anticipated to be 1.4 percent this year (2014\/15), almost half of the 2.7 percent forecast in February.<\/p>\n
“While growth is expected to reach three percent in 2017, this is well below the country’s potential and has placed public finances under increasing pressure.<\/p>\n
“Rising debt levels, if left unchecked, would absorb more and more of our spending,” he said.<\/p>\n
On reducing spending, Nene said government would lower its 2014\/15 budget spending ceiling by R25 billion over the next two years.<\/p>\n
“Government proposes to reduce this ceiling by R10bn in 2015\/16, and R15bn in 2016\/17.”<\/p>\n
On tax revenue, he signalled changes to incorporate the recommendations of the Davis Tax committee were on the cards for next year.<\/p>\n
“Proposals will be introduced in the 2015 budget to generate additional revenue of at least R27bn over the next two years.”<\/p>\n
Policy and administrative reforms — details of which would be spelled out in next year’s budget — would raise revenues by “at least R12bn in 2015\/16, R15bn in 2016\/17, and R17bn in 2017\/18”.<\/p>\n
Speaking to reporters on Wednesday, ahead of his speech to the National Assembly, Nene said increasing state revenue was part of plans to put public finances onto a sustainable footing, but declined to say whether he would raise personal income taxes come February.<\/p>\n
Asked who would bear the brunt of belt-tightening, he answered “all of us”, but added that all efforts will be made to protect the poor and to keep funding priorities such as the infrastructure drive.<\/p>\n
“What we need to balance is ensuring that our interventions do not have unintended consequences… of stifling the economy when we are dealing with a financial crisis situation.<\/p>\n
“But also what we want to continue to do is to protect the poor and the vulnerable in this country… but at the same time making sure that we re-allocate our resources to the investment and the productive capacity of the country.”<\/p>\n
The minister said South Africa faced a difficult economic environment.<\/p>\n
“The consumption-led, debt-financed economic growth of recent years has reached its limits, and growth has slowed… weak economic performance has put a great deal of pressure on the fiscus, with revenue insufficient to cover expenditure.<\/p>\n
“The budget deficit is high, debt levels have approached the limits of sustainability, and the economy is vulnerable to global volatility,” he said.<\/p>\n
Nene noted that interest payments had grown rapidly in recent years, and now absorbed more than 10 percent of the national budget.<\/p>\n
According to the MTBPS, the 2014\/15 budget deficit now totals R153.2bn, or 4.1 percent of GDP<\/p>\n
A table in the document shows South Africa’s total net loan debt is now R1.588 trillion.<\/p>\n
On structural reforms over the next five years, Nene said these would include sending the public service “back to basics”.<\/p>\n
This would see it focus on service delivery and sound financial management, as well as improving education against measurable targets, and better managing labour disputes.<\/p>\n
Nene also announced a strict “deficit-neutral” approach to state-owned companies, including Eskom and South African Airways. He said these could no longer count on bail-outs from the state.<\/p>\n
“Over the next two years, government will ensure that any capitalisation required does not widen the budget deficit.”<\/p>\n
Government’s financial support for the electricity generator would take several forms, including “a direct allocation to the utility of at least R20bn, raised through the sale of non-strategic state assets”.<\/p>\n
This would have no impact on the budget deficit.<\/p>\n
Nene said government would also “restrain” growth in its own wage bill, and warned that if public-sector wage increases significantly outpaced inflation, service delivery would need to be curtailed.<\/p>\n
“Either by reducing social spending or capital budgets, or by trimming staff members.”<\/p>\n
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