National Treasury has published its “guidelines” to national departments and provincial treasuries, which it says is advisory in nature, and not an instruction – all in a bid to cut spending as South Africa approaches a massive budget deficit this financial year.

The guidelines first cropped up in reporting earlier this month, sounding the alarm on the government’s growing financial crisis.

South Africa faces a budget deficit of up to R300 billion this financial year, with drastic measures needed to close the gap.

The deficit has arisen from much lower-than-expected revenue collection as well as much higher-than-expected government spending. The former has been driven by a downturn in the commodities market, and the latter by a 7.5% wage hike for public servants.

According to the Treasury, it has presented the guidelines to try and get government departments to cut spending.

However, it stressed that:

• The guidelines are not instructions;
• They only apply to national departments and schedule 3 public entities;
• They only apply for the remainder of the 2023/24 financial year.

The “guidelines” would apply to about 157 schedule 3 public entities (including the RTIA, the RAF, etc) and close to 100 provincial entities. Groups like Eskom, Denel, SAPO, ACSA and Telkom are not included as they are schedule 2 entities.

“While (the guidelines) do not apply to schedule 2 public entities, the executive authorities and accounting authorities of these entities are strongly urged to take these guidelines into account and implement similar measures,” Treasury said.

“These guidelines intend to assist accounting officers and accounting authorities to significantly reduce the pace of expenditure within their portfolios in the current financial year.”

The cuts

The cuts focus on four key areas: recruitment, travel, conferences and catering, and capital spending.

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Recrutiment

Because of the wage hikes given this year, Treasury wants a tighter rein on hiring.

All affected departments/entities should consult with the minister of Public Service and Administration on all changes to organisational structure – and every post filled or created must be motivated and authorised.

This measure will become a directive applicable and binding to all departments and government components.

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Travel

Accounting officers should consider alternative arrangements to costly travel – including virtual meetings or delaying travel where possible.

Where travel is unavoidable, organisers should try and arrange meetings closer together to minimise travel – and pre-planned travel plans should be submitted and monitored on a monthly basis.

This measure does not apply to routine travel with no overnight stay or flights, and it does not apply to the president or provincial premier – or any travel paid for through external sources (ie, donor funding).

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Conferences, workshops and catering

Arranging meetings outside of government premises should be avoided and where a meeting, conference or workshop is arranged, no catering should be provided.

This does not apply where the engagements are wholly or partly funded by external sources.

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Capital spending

Accounting officers and accounting authorities are advised to consider postponing the replacement of machinery and equipment until 31 March 2024. This includes items such as desktop and laptop computer equipment, telecommunications equipment, vehicles, and construction equipment.

Projects where the procurement process is already complete and valid invoices underway are exempt.

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An example of the notice sent to departments can be seen below:

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Red flags over changes

The guidelines from Treasury come on top of other murmurings and speculation around wider budget cuts and bigger changes in the pipeline to cut spending. The full scale of these cuts will only be known when Finance Minister Enoch Godongwana tables the mid-term budget on 1 November.

Earlier this month, however, the Treasury introduced a host of ideas to President Cyril Ramaphosa to counter the country’s revenue shortfall and wider-than-expected budget deficit.

Proposals made by Treasury included:

• Increasing value-added tax by 2%, closing programs,

• Reducing or merging the number of government departments and state-owned enterprises,

• Managing the public-sector wage bill

• Reforming the skills development levy.

Treasury has also been pressured by the government to extend the R350 Social Relief Distress (SRD) grant that was introduced during Covid-19 as it has not been budgeted for beyond the current financial year.

Calls to cut spending have, however, been met with vehement opposition from those in the ANC, including the President, with 2024 being an election year. Unions have also threatened to strike if the spending cuts are introduced.

“We think the Treasury proposals on a freeze on vacancies, reducing the headcount, cutting departments, cutting programs, is going to collapse the capacity of the state,” said Cosatu spokesman Matthew Parks.

Big problems with the plan

Speaking with Newzroom Afrika, Duma Gqubule from the Centre for Economic Development and Transformation said that Treasury’s plan will add further pain to the South African people.

He said cutting expenditure would ultimately hurt GDP growth as the government, including State-owned enterprises, is the largest spender in the economy and accounts for roughly 40% of South Africa’s GDP.

“If you cut (spending) so deeply, it reduces GDP, it reduces the tax revenue, and it results in a higher debt ratio,” he said.

“A national budget does not work like a household budget. If you and I cut spending, we save. For the government, it’s almost like a self-defeating purpose.”

He said that South Africa’s economic performance over the last 30 years more or less correlates with the level of government spending.

For instance, from 2003 to 2008, the government increase in expenditure helped the economy grow by roughly 4.5% per year, while the debt ratio came down to roughly 28%.

“Since 2009, the government has stopped spending on its people. The reason for the rise in debt ratio is not due to overspending by government departments, but the lack of spending, because it reduces the size of the economy,” the expert said.

Gqubule also questioned the legitimacy of the concerns over the SRD grant, noting that the SRD Grant only makes up R35 billion of government’s R2.2 trillion in spending – roughly 1.5%.

He added that this programme has been in government for three years despite being unfunded (not needing additional taxes.)

He argued that Treasury is just using scare tactics as it knows that it cannot end a programme that helps 8 million people two months before an election. He further questioned how Treasury has not budgeted for it in the upcoming financial year.

He also questioned the legitimacy of a new “financial law” that will introduce mandatory austerity measures if the country hits a certain debt size without any consultation with the government or social society.

“I believe that Treasury has crossed a line. These proposals will collapse the economy, and they will also result in social unrest,” he concluded.

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