EDGAR SISHI: Treasury has presented a balanced budget proposal

Ann Bernstein’s article unfortunately missed the mark on the Treasury’s years-long policy stance and included a number of factual inaccuracies that must be corrected.

Budgeting involves policy choices across different dimensions. One dimension considers the different priorities of a country’s government. The US famously spends huge amounts on its military, while the UK is well known for the space its National Health Service occupies in its public finances.

SA’s public spending is dominated by the social wage, which consumes 61% of the budget and is almost entirely composed of permanent, recurring forms of expenditure, such as salaries for nurses and teachers as well as social grants.

As the custodian of public finances the Treasury has been consistent that if the social wage increases, it must be funded in a fiscally sustainable manner. This is why in the 2024 medium-term budget policy statement, like previous publications before it, we stated in chapter 1 that: “A sustainable fiscal approach requires that any permanent addition to spending must be funded through permanent revenue sources or reprioritisation from the existing fiscal envelope.”

Therefore, it is misleading to suggest that there has been a shift in the fiscal strategy. The Treasury did not claim that tax increases could never come onto the table, but rather presented them as part of the overall basket of choices facing the government. However, the nature of the choice is fundamentally a political decision, not only a function of the Treasury’s technical processes. 

The status of spending reviews is totally misrepresented in Bernstein’s article. Spending reviews have been conducted and some are ongoing. Contrary to the false assertion that the process is “vague” or “closed-door”, the Treasury through the Government Technical Advisory Centre (GTAC) has published this information on the GTAC website over several years for everyone to read.

Whenever the Treasury is invited to present the details of spending reviews, we do so. The most recent example was the presentation on March 19 before a public hearing of the standing committee on appropriations in parliament.

Beyond these errors, Bernstein went on to make the assertion that the budget numbers “do not add up”. Unfortunately, this is based on an incorrect reading of the budget, including in respect of the social relief of distress (SRD) grant. As stated in chapter 5 of the 2025 Budget Review, while only a one-year appropriation is proposed for the department, the fiscal framework fully incorporates funding for the SRD over the three-year period of the budget.

The government’s stance on financial support for state-owned enterprises (SOEs) also appears to have been misunderstood. In fact, the budget tabled on March 12 presented a nuanced approach, whereby allocations were proposed for SOEs in the form of gap-funding for national priority infrastructure projects (in the case of Transnet and the Passenger Rail Agency SA), or balance sheet repair (as in the case of the SA National Roads Agency).

These strategic allocations, which are accompanied by strict conditions to ensure performance, are different from the typical unconditional bailouts some entities have received in the past. This is more likely to incentivise SOEs to reform their management and financial structure, while at the same time supporting operational activities related to government-approved projects. 

Beyond this, it is also factually untrue that every tax hike has underperformed in recent history. Increases in customs and excise have generally performed in line with expectations, and the VAT increase of 2018 did raise sufficient revenue, but this was offset by the clearing of VAT refund backlogs. More broadly, the Treasury has long indicated that poor economic growth performance since 2009 is mainly due to poor electricity supply and logistics performance, and that the fiscal imbalances grew mainly because of bailouts to underperforming SOEs and unfunded wage increases.

In both instances the budget seeks to reverse this trend. New large, unconditional bailouts are avoided, and the three-year 2025 wage agreement is fully funded and will ensure budget certainty for the medium term. 

The Treasury has presented a balanced budget proposal that takes the priorities of the country and its government into account. It also ensures that future generations are not being forced to deal with the spending choices of the government of the day.

• Sishi is deputy director-general of the budget office at the Treasury.