Budget 2023
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Wage bill dents govt spending plans

Cape Town – Treasury has had to cut R5bn of government spending in 2015 to compensate for the R64bn public sector wage agreement.

“This is not a sustainable situation,” Finance Minister Nhlanhla Nene told parliament on Wednesday. “We recognise the need to improve the negotiating process and reform public sector remuneration.”

It is the main change in Nene’s budget, which he tabled in February.

The agreement led to a compensation budget shortfall of R12.2bn in the current fiscal year, R20.6bn in 2016/17 and R31.1bn in 2017/18. The contingency reserves will be drawn down by R5bn in 2015/16, R10bn in 2016/17 and R26bn in 2017/18.

The contingency reserves were sharply reduced to accommodate the increase in compensation budgets and to fund critical social priorities, the budget explains. The R5bn contingency reserve for 2015/16 was fully absorbed by the wage bill shortfall. Projected reserves of R15bn and R45bn in the two outer years have been cut to R2.5bn and R9bn respectively.

“The agreement provides for additional costs of 10.1% this year, and improvements that will be at least two percentage points higher than consumer inflation in the next two years,” said Nene, who was tabling his mini budget.

The deal increased government's wage bill from R412.7bn to R466.8bn over three years, Nene told parliament on Wednesday. Of the R63.9bn amount, R41.5bn is for cost of living adjustments, R11.1bn is for medical assistance and R11.4bn is for housing allowance, Nene said.

“Departments will need to reallocate spending from other priorities,” said Nene. “For the period ahead, the improvement in compensation means that there is no room for expanding government employment.”

Most of the costs of the agreement will be funded through savings, re-allocation and draw-downs on contingency reserves, Treasury explained in its mini budget statement.

Nene tabled the 2015 Adjusted Estimates of National Expenditure on Wednesday, which included R1.2bn for national government and R3.8bn for the provincial government for the public sector salary adjustment.

Treasury said R29.9bn will be added to the provincial equitable share in the current year and over the next two years to fund the shortfall.

The shortfall in compensation budgets has significant consequences for public finances, absorbing resources that had been set aside for other priorities.

New policy proposals requiring additional funding in the first two years of the medium-term expenditure framework (MTEF) period are to be delayed, or funded through re-prioritisation or improved efficiencies, Treasury showed.

The revised MTEF provides no funds to expand public sector employment over the next three years. Departments that had planned to expand headcount or fill vacancies need to postpone their plans. Some institutions may need to reduce the number of people they employ, the mini budget explains.

Treasury said a moderating factor is that the number of personnel employed on government’s payroll has declined by 12 000 since 2012.

Treasury said it will work with national and provincial departments to avoid any compromises on service delivery, or the diversion of resources from capital budgets to pay for compensation.

“Nevertheless, it is likely that the agreement will have adverse consequences for the quality and composition of the public finances,” said Treasury.

The revised MTEF shifts about R9bn from within existing baselines to priority programmes. About R4.8bn is re-prioritised for upgrades and maintenance of the national and provincial road networks.

R1.4bn has been identified to support provincial public transport, and about R1bn will be shifted for the rollout of broadband infrastructure and broadcast digital migration.


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