Government’s Ability to Cut Expenditure Relative to GDP
In this regard the National Treasury has performed admirably in containing expenditure growth in the first nine months of fiscal year 2018/19. Indeed, Main Budget expenditure advanced by 4.6% year-on-year over the first three quarters of the fiscal year. This compares favourably with an initial budget of 7.1% (February 2018), later revised to 7.7% in the 2018 MTBPS. Admittedly, government spending can be “lumpy” and expenditure could lift in the last three months of the fiscal year. Even so, we expect significant savings over the full fiscal year.
But, looking ahead, considering contingent liability risks listed by the National Treasury in the 2018 MTBPS, the government is likely to need those savings. To start, the Treasury warned provinces have some R25 billion in unpaid bills. Further, the Treasury noted 113 local governments adopted unfunded budgets in 2018/19, compared with 83 municipalities in 2017/18. Local governments are expected to fund most of their expenditure from own revenue, but they do receive an allocation from government. The problem is local government arrears amounted to an estimated R23.4 billion in 2017/18.
In addition, legal claims for medical negligence are a substantial contingent liability for provincial health departments. These claims amount to R80 billion. It is unlikely all claims will be successful. Still, pay-outs amounted to R1.5 billion in 2017/18, while the 2018 MTBPS indicated they are likely to exceed R2 billion in 2018/19.
Also, the implementation of National Health Insurance will require material resources in the years ahead, while potential upward revisions to future population estimates, if realised, would need to be included in government spending projections when the medium-term expenditure framework is announced in October 2019.
Moreover, the Treasury projects total worker compensation, which accounts for 35% of government’s total consolidated expense bill, will remain high.