government is proposing fiscal policy adjustments to reduce the budget deficit and stabilise debt, according to the 2016/17 National Budget tabled in Parliament on Wednesday.
Finance Minister Pravin Gordhan said at a press conference that the aim was a "credible budget" and "to do what we can and take some tough decisions to avoid a ratings downgrade".
Rating agencies have over the past couple of months indicated that they might downgrade South Africa’s debt and investment position to junk status.
Gordhan said that the government, notwithstanding "turbulent times", believed "we have the resilience to withstand the pressures, but are not afraid to be open about the risks".
He also stressed the imperative of economic growth and that the government has been working closely with the business sector recently in this regard.
In line with adjustments made, projected deficits in each year of the next three years forecast were lower than estimates set out in October 2015.
According to the Budget Review, a consolidated primary surplus could be achieved in 2016/17, when revenue would exceed non-interest spending for the first time since the 2009 recession.
The expenditure ceiling had been reduced by R25bn over the next three years compared with the 2015 mini budget.
Tax adjustments would yield gross revenue increases of R48.1bn over the next three years.
National debt was projected to stabilise at 46.2% of GDP in 2017/18, and to decline thereafter.
Rising debt service costs reflected the weaker exchange rate and higher interest rates. Total public sector debt - gross government debt, non-financial state-owned companies and local government - was 61.9% of GDP in 2014/15.
Risks to the fiscal outlook included below-projection GDP growth, increases in inflation-linked expenditure and the weak balance sheets of several state-owned entities.
Government is actively managing these risks, according to the Budget Review, and the proposals reinforced governement’s commitment to a prudent, sustainable fiscal policy trajectory. If any of these risks were to materialise, government would need to consider contingency measures.
In the event of slower growth or higher inflation, government may reprioritise spending, further reduce baseline allocations or defer new programmes. Government is working with state-owned companies facing financial difficulties to stabilise their balance sheets and implement realistic turnaround plans.
The budget deficit would fall from 3.2% in 2016/17 to 2.8% in 2017/18, and 2.4% the following year.
To achieve its fiscal goals, government is proposing to increase revenue through tax policy measures that would raise an additional R18.1bn in 2016/17, and R15bn in each of the subsequent two years.
Furthermore, the expenditure ceiling would be lowered by R10bn in 2017/18 and R15bn in 2018/19 by reducing compensation budgets (civil service salary bill), complemented by measures to restrict hiring.
R31.8bn would be reprioritised over the next three years to meet new spending needs, without increasing the total expenditure envelope.
Relative to projections contained in the 2015 mini budget, these steps would lead to additional fiscal consolidation of R18bn in 2016/17, R25bn in 2017/18 and R30bn in 2018/19. This added to the R42bn of consolidation measures (R25bn in spending reductions and a R17bn tax increase) announced in the 2015 budget.
The fiscal consolidation would see gross tax revenue increase by 1.5 percentage points of the GDP, and main budget non-interest expenditure (excluding the Eskom appropriation) fall by 0.5 percentage points of GDP between 2015/16 and 2018/19.