The National Treasury presented the Medium-Term Budget Policy Statement (MTBPS) in Parliament on Wednesday focusing on the 1,8 % economic growth forecast over three years, emphasising once again the need for continued containment of government debt and expenditure while proceeding with economic structural reforms to unlock the potential in key sectors of the economy.
After the MTBPS was released, National Treasury met with members of the Select Committee on Appropriations, the Standing Committee on Appropriations, the Select Committee on Finance and the Standing Committee on Finance. The Treasury’s Director-General, Mr Duncan Pietersen, told them that the government’s budget deficit will narrow from 5% of gross domestic product (GDP) in 2024/25 to 3.2 % of GDP in 2027/28%, while debt would stabilise at 75.5% of GDP in 2025/26.
Committee members had a range of questions for National Treasury about the economic rationale underlying the 2024 MTBPS in the face of the many challenges at all levels of government across the country. Some of these problems highlighted by members include the failure to collect revenue from municipalities, the collapse of many water boards due to non-payment for services rendered, and skyrocketing municipal debt to Eskom.
Mr Pietersen suggested two remedies to the problem of outstanding debt. One is that government entities who are owed money should exercise their right to enforce payments and attach the bank accounts of those who owe them money as a means to enforce payment. Secondly, debt owed by a provincial government or local municipality can be deducted from their equity shares. Both of these remedies will have further consequences, of course.
Committee members also highlighted revenue collection at the South African Receiver of Revenue (SARS) as another problem caused by government underfunding of the institution. They observed that revenue collection 2024/25 is projected to be R22.3 billion lower than the government’s budget.
SARS Commissioner Mr Edward Kieswetter appeared to support this view, saying: “We are face with the culture of non-compliance, which often leads to low revenue collection.” Currently, SARS lacks the critical skills needed to address this problem, he noted. We are competing in the field of digital intelligence and AI with companies that are prepared to invest in their expertise,” Mr Kieswetter said. The SARS Commissioner called for SARS’ funding model to be renewed, as this will assist SARS to improve its staff capacity and operate more effectively.
Committee members also noted that Treasury’s presentation pins its hopes of economic growth on a second wave of structural economic reforms. They asked for more detail on these reforms. Mr Pietersen explained that the MTBPS pinned South Africa’s economic recovery on structural reforms aimed at liberalising state monopolies in key sectors, such as electricity, renewable energy, rail and road freight, logistics and digital technology. These are the core sectors of the economy where government and private sector investment can build momentum for inclusive economic growth, he said.
These liberalising reforms, Mr Pietersen stated, are aimed at encouraging private investment in these sectors, as the government is unable to achieve such an undertaking on its own. “In this regard, reforms will promote partnerships between the public and private sectors. And this would lower the cost of doing business and introduce an infrastructure delivery model that will improve their implementation and the creation of much-needed jobs,” he said.
Some members supported this idea of allowing some privatization of government assets, while others believe that such a move will hamper the state’s developmental agenda. In response to that, the Deputy Minister of Finance, Mr David Masondo, said: “It does not matter whether a cat is black and white or not. What matters most is whether it’s capable of catching the mice.”
He went on to corroborate his view. “We all know Eskom’s liability to the economy, and the need for government to introduce renewable energy to the grid. But we also know that government does not have funds to fulfil these undertakings alone. We also know about Transnet rail freight constraints in moving the goods on time so that the economy can grow. Hence, we are now liberalising these sectors of the economy to allow the private sector to play a role in them so that our economy can grow.” Liberalisation of critical economic sectors is not unique to South African economy, Mr Masondo pointed out. Even China had to privatise its energy-generating sector to boost economic growth, he said.
Another risk factor to the government’s finances is the bloated public sector wage bill. A member of the committee wanted to know whether National Treasury’s projection of a 4.5% public sector wage increase in the forthcoming financial year is realistic when there is no agreement yet with labour unions on the figure. Mr Pietersen replied that this is a proposal on the table at present. In the meantime, contingency funds are available to ensure that frontline and critical government services are not affected adversely by any shocks or unforeseen expenditure pressures.
One committee member mentioned that National Treasury has previously suggested other solutions to this problem, including reducing the number of public sector posts, but as yet this has not occurred. Mr Pietersen replied that this undertaking would be communicated to the executive authorities of government departments to implement it in the forthcoming financial year as this is a funded decision on the part of National Treasury. The Public Service Commission will also be consulted on the matter, he said. Mr Pietersen emphasised, however, that this will be a voluntary initiative; people will not be forced to leave the sector against their will.
Abel Mputing
1 November 2024
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