Treasury warns that SA’s debt crisis could hit service delivery

Government told wasteful expenditure has potential to destabilise economy and stymie growth

THE NATIONAL Treasury has warned that South Africa’s debt crisis could deepen further and impact service delivery if the government does not cut wasteful expenditure, such as the unchecked leasing of property for its departments.

Deputy Finance Minister David Masondo yesterday recommended that the government regularly conduct spending reviews to reduce the costs of delivering public services.

Masondo said there had been a couple of “really frightening” reports on the costs that the government incurs in renting office accommodation.

Masondo said Treasury officials needed to help guide the government towards a more sustainable footing.

“When we reviewed leases of national departments, we found that 60 percent of leases were above the current market rates, and that the average premium being paid on these leases was about 45 percent,” he said.

“Extrapolating to the full lease portfolio, that means of the R3 billion that was being paid to lease office accommodation in 2015, as much as R700 million might have been saved if the rents had been at market rates.”

The government has been struggling for years to stabilise public debt because of the widening gap between tax revenues and spending commitments.

Debt service costs have now become the fastest-growing line item in the Budget, crowding even social security expenditure.

The costs of servicing debt is expected to average 20.9 percent of gross tax revenue, at R269bn, for the 2021/22 financial year, rising up to R916bn in the medium term.

Masondo said all the debt the government had accumulated already, combined with big deficits every year, was weighing down on the economy and making it hard to grow.

He said although the SA Revenue Service has collected R38bn more than what was estimated, the government’s expenditure was still way above revenue collection.

“The bottom line is that to get out of this very tough situation, government is going to have to spend less than we probably want to spend to respond to all the needs that we have,” he said.

National Treasury director-general Dondo Mogajane said the government had to achieve much a closer alignment between how much it spends and the level of resources the economy generates.

Mogajane said the decision not to implement the third year of the 2018 public sector wage agreement and freezing wage increases for the next few years was a very painful decision, but “was absolutely the right decision to make”.

He said the government was spending on consumption and not on the productive sectors of the economy, and the Budget was going to be under severe pressure for a number of years.

“Our debt has the potential to destabilise the economy and to slow growth, so unless we get our spending under better control, we will not achieve the growth and prosperity that the county and its people deserve,” Mogajane said.

“We are spending R25bn more on debt than the total health budget. How do we make sure that we don’t create an inter-generational crisis?”

South Africa’s fiscal framework and debt-to-gross domestic product levels will come into play when Moody’s announces its review of the country’s credit rating tomorrow.

Investec chief economist Annabel Bishop said expenditure would weigh

down the review.

“We continue to believe the ratings pressures are probably off for any downgrades in the first half of this year, but also that South Africa will likely retain the current negative outlooks from Fitch and Moody’s, as key will be achieving, then further lowering, the expenditure objectives.”