Cost-containment memo doesn't mean capital spending cut: Godongwana

Suggestions that the National Treasury’s cost-containment memorandum meant a freeze on capital spending and investment in critical infrastructure have been dismissed by finance minister Enoch Godongwana. 

“There is absolutely no rationale for the fear that investments in infrastructure will be curtailed,” he said on Wednesday, after the memorandum's release this week.

“Let’s take the issue of Eskom. Eskom’s ability to invest and maintain to the satisfaction of the minister of electricity arises precisely because we have made a commitment to undertake some of their responsibility, including their debt, and today Eskom can do massive maintenance programmes to the advancement of the South African economy in general.” 

Godongwana was replying to questions from MPs in the National Assembly regarding how the government would go about spending in the context of the Treasury’s outlined cost-containment measures. 

The memorandum, among other things, instructs departments to curtail spending on unproductive programmes, and stop underspending or return unspent money to the appropriate revenue fund. 

The minister was asked by DA MP Dion George “whether, in light of the recent stringent austerity measures proposed by the National Treasury,” the minister had found the Treasury had miscalculated, projecting growth and revenue at a higher rate in the 2023/24 budget. 

George also asked why the “austerity” measures were required if expenditure on the public sector wage increase was ratified earlier in 2023 and why costs associated with VIP protection services for government officials were not reduced instead. 

Godongwana replied: “All measures and advice provided to departments are in line with processes that have been under way since the start of the budget process. In June 2023 the Treasury published budget guidelines for the (medium-term expenditure framework) indicating clearly that savings, reprioritisation and extension of fiscal consolidation measures would be required.”

Accounting officers have been asked to exercise greater spending control for some time, but the public wage negotiations took place at the public sector co-ordinating bargaining council, said the finance minister. 

“The economic growth outlook has worsened significantly relative to expectations outlined in the 2023 budget, given the impact of more intense load-shedding and freight and port logistics constraints, among other things. 

“The fiscal challenges in 2023/24 mainly originate from lower-than-expected tax revenue collection for the first months of the year and tightening fiscal conditions that were constraining government’s borrowing programme and led to higher borrowing scopes.

“These developments happened after the budget and after the 2023 public service wage agreement was signed in March 2023,” Godongwana said.

The Treasury published a fiscal risk statement outlining the risks to baseline economic forecasts which might change the outcomes of the government’s projected outlooks in multiple scenarios. [However,] GDP projections remain broadly credible, he added. 

DA MP Ashor Sarupen asked what the government would do to stimulate growth, while continuing spending on VIP protection services, government events and consultants as the 2024 national election drew closer. 

Godongwana said while he was not interested in responding to questions of electioneering, the government's commitment to increase investment in infrastructure and growth remained. 

“If you look at the proposals, what it says is where you are capable of spending the money in-year, surely that should continue, you cannot cut that investment. Where you do not have the capacity to proceed and finish the money, you may have to curtail that,” he said. 

The minister said the two-year public sector wage agreement talks achieved stability for the government as the Treasury now knew how much to pencil in for the next financial year for public servants' compensation. 

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