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If SA does nothing to address the current debt trajectory, the country could face a debt crisis, the Treasury warned.
- SA needs to actively address its growing debt burden to avoid a debt crisis, the Treasury told Nedlac.
- An economic reform initiative will be announced shortly, and the Treasury will investigate wealth taxes.
- The Treasury has said that there are no additional resources available for the next three years.
The National Treasury is conducting an investigation into wealth taxes and has already started work on how to implement a zero-based budget, members of the National Council for Economic Development and Labor heard.
This week, Treasury Deputy Director General Edgar Sishi briefed the council on economic and fiscal considerations for the 2020 medium-term budget policy statement.
Echoing the supplementary budget, presented in June, the Treasury presentation, seen by Fin24, warned of a debt / GDP ratio of over 90%. He noted that if “active measures” are not taken, a debt crisis will follow in the form of an “episode of over-indebtedness” or a “permanent restriction of the investment channel.”
In a fiscal crisis, interest on debt alone could account for 39% of major budget revenue.
If South Africa takes active steps to ensure fiscal consolidation and economic reforms, debt could stabilize by 2023/24; this will require spending cuts and income adjustments of approximately R250 billion over the next two years, the presentation reads.
This includes spending reductions of R230 billion in 2021/22 and 2022/23, with the wage bill being a “key area” to meet fiscal targets, the Treasury said. Tax increases of R5 billion will also be implemented in the next fiscal year and R10 billion and R15 billion in the last two years; these additional tax measures will be announced in February.
“These measures require difficult decisions that will affect the distribution of public resources,” the presentation read.
More details will be revealed in the medium-term budget policy statement.
The Treasury said research and analysis on estate taxes is underway, and improved collections by SARS will also help efforts to increase revenue.
Details of the economic reforms, known as the Vulindlela initiative, will also be released “shortly.”
No additional resources
The Treasury further indicated that there are “no additional resources” for the next three years or the 2021 medium-term spending framework. “This means that any additional allocation to one program will have to be financed with reductions in another program, either within budget. from the department or the budget of another department, “he said.
While work is also underway on how the zero-based budget can be implemented, the Treasury will approach Cabinet for approval.
The Treasury also reiterated that emergency procurement measures will be withdrawn. In the medium term, the government will seek to automate the contracting process and pass the public procurement bill.
