Mboweni relying on public sector wage bill reduction to shrink budget deficit

Finance Minister Tito Mboweni warned that public finances needed to be rehabilitated as efforts went into helping the economy to recover from the COVID-19 pandemic and lockdown.

FILE: Finance Minister Tito Mboweni delivers his Medium-Term Budget Policy Speech in Parliament on 28 October 2020 in Cape Town. Picture: GCIS

CAPE TOWN - Finance Minister Tito Mboweni is relying on reducing the public sector wage bill to help shrink the budget deficit and stabilise debt over the next five years in order to return public finances to a sustainable position.

At the same time, he’s announced that bankrupt national carrier South African Airways (SAA) will get a R10.5 billion bailout, on top of the more than R16bn it was given in the February budget.

Mboweni on Wednesday delivered the much-anticipated Medium-Term Budget Policy Statement in Parliament, warning that public finances need to be rehabilitated as efforts went into helping the economy to recover from the COVID-19 pandemic and lockdown.

• READ: Tito Mboweni’s Medium-Term Budget Policy Statement

Mboweni said that the economy was expected to contract by nearly eight percent (7.8%) this year, but could rebound to 3.3% of GDP next year and then an average 2.1% over the three-year forecast period.

Treasury expects economic output to return to pre-pandemic levels only in 2024.

"We must now rally behind fiscal rehabilitation and growth. Right now, government is borrowing at the rate of R2.1 billion a day. This cannot continue."

A warning from Finance Minister Tito Mboweni that debt levels are unsustainable and without curbing it and narrowing the budget deficit, South Africa will face a sovereign debt crisis.

He’s set out a series of measures aimed to get the country’s finances back on track, but there will be pain involved.

The tax revenue shortfall for this year is more than R312bn. Government debt is already eating 21 cents out of every rand, taking away money for other programmes.

Gross national debt is expected to stand at 95.3% of GDP in five years' time.

Mboweni said that a new consensus must be forged on public servants' wages.

"We need a strategic conversation, one which takes into account the needs of the country as a whole. Our compatriots in the private sector have already made sacrifices and even negotiated salary reductions to keep their businesses afloat.

"Over the past five years, public sector employee compensation grew by 7.2% a year on average, well above inflation. Over the next five years, it will need to grow much, much lower."

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