Economic growth essential to avoid more fiscal measures, warns Treasury
If no progress is made with the reform agenda reform of SOEs and the public-sector wage bill will be necessary
More fiscal measures may be required in next year’s budget, if no progress is made with economic reforms aimed at accelerating the growth rate, a senior Treasury official warned in parliament on Friday.
Such measures would be necessary if no progress is made with the reform agenda and if the Treasury believes the fiscus is on an unsustainable path, acting deputy director-general of the budget office, Ian Stuart, said in a briefing to members of parliament’s two finance committees.
He gave the Treasury’s response to submissions made during public hearings on the medium-term budget policy statement (MTBPS) tabled in parliament by finance minister Tito Mboweni last week.
The theme of the policy statement was that SA is at a crossroads, which requires that difficult choices be made with regard to, for example, state-owned enterprises (SOEs), management of the public service wage bill, and the implementation of economic reforms to stimulate growth.
“Key fiscal risks in the period ahead include weak economic growth, uncertainty in the revenue outlook, and the poor financial position of state owned companies,” Stuart said, stressing that in a period of low growth and rising administered prices, the Treasury wants to avoid putting additional downward pressure on the economy and household incomes.
He warned that, after years of fiscal consolidation, the government was running out of space for additional tax increases, spending cuts and reprioritisation.
He said reforms of SOEs and the public-sector wage bill will be required to protect the expenditure ceiling which has been kept intact as an anchor of fiscal policy. Real, non-interest spending will grow by 1.9% per annum over the medium term with prioritisation being given to education, social welfare and health.
“Our main challenge is persistently low economic growth. The underlying causes cannot be fixed through the fiscal framework. What is required is implementation of growth reforms together with efforts to improve services by strengthening governance, stamping out waste and corruption, and turning around key state institutions,” Stuart said.
He emphasised that in compiling the medium-term budget, the Treasury had tried as much as possible to protect front-line services such as health, education and infrastructure budgets.
“Across-the-board cuts would likely harm front-line services. What is required are decisions to target areas of inefficiency.”
Stuart noted that on the revenue side, under-collections had risen consistently, despite increases in personal income tax, VAT, ad valorem duties, the fuel levy, dividends tax and capital gains tax.
Stuart defended the Treasury’s projections on economic growth, which had been found in several studies to be on a par with or better than market projections.