Expenditure ceiling to come down R26.1bn

22 February 2017

Pretoria-  Treasury plans to reduce the expenditure ceiling by R26.1bn over the next three years by cutting spend on non-core goods and services as well as compensation budgets.

This is according to the National Budget, delivered by Finance Minister Pravin Gordhan in Parliament on Wednesday.

Treasury plans to lower the spending ceiling by R10.2bn in 2017/18 and R15.9bn in 2018/19.

Treasury has had to make adjustments to government expenditure due to the low economic growth and lower than expected revenue collection, according to the Budget.

So far, public spend is expected to increase from R1.4tr from 2016/17 to R1.8tr in 2019/20. “Expenditure on public services will continue to grow moderately above inflation,” said Gordhan.

In addition to drawdowns in contingency reserves by R4bn in 2017/18 and R5bn in 2018/19 to provide additional funding for reprioritised expenditure of R30bn, Treasury is also introducing baseline reductions.

“Government proposes a R6.9bn reduction in baseline budgets in 2017/18 and R5.5bn in 2018/19,” read the Budget.

The budget cuts will affect national, provincial and local government. Budget 2017 proposes a reduction in compensation budgets in national departments by R437m in 2017/18, and R471m in the 2017/18 and R497m in the following year. Existing headcount and recruitment will be managed within the adjusted ceiling.

However, growth in spending on compensation of employees remains relatively high at 7.2% annually. Compensation will remain at about 35.3% of consolidated spending over the medium term, according to the Budget.

Gordhan added that provinces have made progress in “reducing spend on non-core goods and services” and in controlling personnel costs.

Spend on non-core goods and services, which include travel and catering among others will also be reduced. This is by R649m in 2017/18, R667m in 2018/19 and R R787m in 2019/20.

“Spending on non-essential goods and services fell in real terms by 7.1% in 2014/15, 6.1% in 2015/16 and is anticipated to decline by 4.5% annually over the medium term,” said Gordhan.

Personnel spend has declined just under 60% in 2016/17, this will free up more resources to invest in services, he said.

There will also be significant reductions in transfers to public entities, especially those with large accumulated reserves. Others include the South African Revenue Service (SARS), the Passenger Rail Agency of South Africa (PRASA), the South African National Roads Agency Limited (SANRAL) and the South African Social Security Agency (SASSA).

Spending on transfers and subsidies will average growth of 7.7% over the medium term, the Budget read. This is as a result of growth in transfers to higher education institutions at 10.4%, transfers to households at 7.8% which will account for social grant increases.

Transfers to provinces and municipalities will grow by 8.3% to support basic services, public transport and housing.

“Large conditional grants to provinces and municipalities are also being trimmed,” read the Budget. These include the human settlements development grant, the educational infrastructure grant and the water services infrastructure grant, among others.

More value for money

“Getting value for money is a central objective over the period ahead,” the Budget read.

The office of the Chief Procurement Officer (CPO) has been established with this intention. By expanding centralised procurement of common goods and services, the office aims to save R25bn over the medium term.

A travel policy framework will be established by 1 April 2017 to standardise dealings with travel management companies. This policy is expected to save R1.3bn over the next three years. Centrally negotiated software license agreements will also save R2.5bn over the same period.

Treasury is also putting in place guidelines to support departments and entities to reduce unauthorised expenditure, and fruitless and wasteful expenditure.

This article first appeared on Fin24, see here.