Mid-term budget: Godongwana maintains line on austerity

Finance Minister Enoch Godongwana has doubled down on the government’s fiscal consolidation efforts by reducing spending from 28.6% of GDP in the 2023-24 financial year to 27.6% in 2024-25. 

This largely reflects measures implemented in recent years and slower growth projected in non-interest expenditure relative to GDP, the treasury said in its medium-term budget policy statement tabled in parliament on Wednesday.

Debt service costs are projected to rise at a nominal annual average rate of 6.9% over the next three years. Meanwhile, 5.2% of the budget will go towards servicing debt.

The treasury said the budget deficit was projected to narrow from 4.7% of GDP in 2024-25 to 3.4% in 2027-28. It said it aimed to stabilise government debt by maintaining sufficiently large primary surpluses over the rest of the decade and that a debt-stabilising primary surplus would anchor fiscal policy over the next three years. 

In his medium-term budget speech to parliament, Godongwana said the treasury would  ensure higher levels of capital investment by stabilising and reducing borrowing costs and directing a growing share of public spending towards capital projects. 

It would control growth in the public-service wage bill by implementing measures to contain overall costs. 

The treasury said it would continue its fiscal strategy while more permanent measures were being considered, including a long-term debt sustainability framework that would be used to strengthen transparency and responsibility in managing public finances. 

This would also ensure that all spending and borrowing decisions were guided by a need to maintain sustainable finances over the long term. 

Proposals are under consideration for legislative changes to ensure that debt sustainability is embedded in the government’s planning and budgeting processes. 

The treasury was mum on the extension of the social relief of distress grant, introduced during the Covid-19 pandemic, but highlighted the amount it had provisioned for social protection.

Between 2015 and 2020, spending on social protection averaged 4.6% of GDP, compared with 1.6% in South Africa’s developing country peers, the treasury said. Over the next three years, 30.6% of the population will receive some form of social grant, excluding the Covid-19-related relief grant.

“This temporary grant has been extended several times. A sustainable fiscal approach requires that any permanent addition to spending must be funded through permanent revenue sources or reprioritisation from within the existing fiscal envelope,” the treasury said. 

During a question-and-answer session with the media, the treasury said the cabinet would   have to decide whether to extend the social relief of distress grant, adding that this would be discussed in February 2025. 

“It was provisioned on an ad hoc basis since that time [during the pandemic] and now the cabinet has to look at labour market considerations,” treasury chief director of health and social development Mark Blecher said. 

The treasury said the government was considering ways to reform the grant system and consolidate public employment initiatives.