THE cost of servicing debt continues to choke the economy and the public finances and in yesterday’s Budget, one in five rand in revenue and taxes received by the government is spent on this.
This government is spending more to repay debt than on basic eduction, social protection or health.
The Budget tried to strike a balance between the need for national development and the sustainability of the public finances despite the low economic growth, which has crimped revenue.
The Budget allocated one in 10 rand to social wages, or spending on education, health, social protection, community development and employment programmes.
Over the medium term, total government expenditure is expected to grow from R2.37 trillion in 2024/5 to R2.47trln in 2025/26 and to R2.6trln in 2026/27.
Additional allocations of R251.3 billion were allocated for the period ahead for the health, education, social development and peace and security functions.
This was mainly to accommodate the 2023 public sector wage agreement and its carry through costs, and the extension of the Covid-19 social relief distress grant.
The Budget also proposed baseline reductions of R206bn over the medium term targeted at under performing or underspending programmes across government functions.
The Budget also reverses some R58bn of spending cuts announced last October in the Medium-Term Budget Policy Statement, increasing funding to pay the salaries of teachers, nurses, doctor, police and others.
The National Treasury’s estimates confirm that that the fiscal multiplier effect of government spending is "below one", which means higher government spending has not been contributing to economic growth.
Of the government's consolidated medium-term spending plans of R2.73trln, some R1.41trln would be spent on social services.
This was made up of R255.4bn for economic development, with the medium term average estimate revised up 6.3%; R480.6bn for learning and culture, revised up 3.9%; R244bn for peace and security, revised up 4%; R271.9bn for health, revised up 3.4%, R74.7bn for general public services, revised up only 1%; R265.3bn for community development, up 4.5%; R382.2bn for debt-service costs, revised up 7.3%; R5bn for contingency reserves, and R387.5bn for social development, up 2.7% over the medium term.
In terms of the debt servicing costs, South Africa's debt as a percentage of GDP was at its highest since 1947, and the debt-to-GDP trajectory was about 16 percentage points higher than other emerging countries’. Gross debt had grown from R1.58trln in 2013/14 to R5.21trln in 2023/24.
Regarding the proposed increases in wages in the public sector, the government said most of its departments would be expected to absorb the wage increase "within their baselines“, which would include managing head counts, and implementing controls on payroll systems to ensure departments stayed within budget.
Other measures were being explored during discussions in the Public Service Co-ordinating Bargaining Council as part of a broader discussion on containing wage bills growth.
The R29.7bn increase in the social development baseline budget is for the extension of the Covid-19 social relief of distress grant.
On health, a R12.4bn net increase was mainly due to the higher government wage bill, and the National Health Insurance Grant was reduced by R860.1 million.
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