President Cyril Ramaphosa has explained the thinking behind last week’s “reality budget”, and why public spending and above-inflation increases in public service wages must be contained.
“We are fixing our public finances to make inclusive growth and job creation possible,” he said. “Such times call for us to be realistic, not dogmatic. They call for cooperation, not conflict. Compromises and trade offs will have to be made.
“We are all in this together, and we share a collective responsibility to take the oars, to row in unison and steer our country through these stormy waters.”
In his latest newsletter, From the Desk of the President, he said he hoped that stemming runaway public spending would help stabilise the country’s debt.
The president has instructed that bureaucrats will not get salary increases this year and a new law will introduce a remuneration framework for public entities and state-owned enterprises (SOEs), to prevent excessive pay for board members and executives.
“The wage bill remains the largest component of spending by economic classification,” he said. “Growth in the wage bill has begun crowding out spending on capital projects for future growth and items that are critical for service delivery.”
SA was spending far more than it was earning.
“As a result, we are borrowing more and more and … debt service costs are now the fastest-growing area of expenditure. We spend more on debt repayments than we do on health; only education and social development get more,” Ramaphosa said.
“We made a deliberate decision not to pursue a path of austerity.
“An austerity budget would have damaged our growth prospects further and weakened the ability of the state to stimulate economic activity and meet people’s needs. [This] budget contains a range of balanced and well-considered measures to contain spending, increase revenue and encourage growth.”
Over the next three years about R261 billion is expected to be freed up. A net reduction of R156 billion in non-interest spending medium term will help to narrow the deficit and reduce borrowing needs.