As economic growth remains subdued with a cap imposed on the expenditure ceiling, government departments would be asked to reduce their operating budgets to avail funds for critical areas of spending. 
Tabling the Medium Term Budget Policy Statement (MTBPS) in Parliament on Wednesday, National Treasury said government departments will need to find resources within their budgets over the next three years to fund critical requirements and to stay within the reduced expenditure ceiling.
“Reductions to baselines will make R18.7 billion available over the next three years.
“Government proposes to reduce the operating budgets of all national departments by 1.1%. “Transfers to some public entities that receive more than R300 million per year from the budget are also to be cut, contributing R5.6 billion over the medium term,” National Treasury said.
The Medium Term budget also proposes reductions to large conditional grants to provinces and local governments.
National Treasury cited rising pressure on public finances as a reason for the tough measures being imposed.
This includes:
  • The 2015 public-sector wage settlement continues to limit the availability of funds for crucial public services; 
  • In the health sector, higher salaries, rising utilisation of services and higher import prices for medicines are straining budgets;
  • The local equitable share, which funds free basic electricity and water for the poor, is more thinly stretched as utility prices outpace inflation;   
  • Congestion is growing on the national road network and the condition of many provincial roads is deteriorating, but there is uncertainty about the funding model for expansion and maintenance;
  • As basic social infrastructure is extended further into rural areas, unit connection costs are rising; and
  • The depreciation of the exchange rate will make it more expensive to run South Africa’s international missions.
Additional funding requirements include a higher allocation to the national school nutrition programme grant to offset the rising price of food.
National Treasury said rising compensation costs have put acute pressure on government departments.
Over the past year, Cabinet has introduced strict limits on the compensation budgets and associated planning of national departments.
Similar measures are under way in provincial governments. Departments now submit, as part of their budget documents, clear plans that reconcile compensation ceilings with headcount management and recruitment, National Treasury said.
“Stronger budget control has stabilised headcounts. However, further moderation in employment levels will be required across government in the years ahead, with much of this reduction achieved through attrition.
“The current public-sector wage agreement expires in March 2018. If government and public-sector workers are able to reach a balanced agreement on wages and productivity, compensation pressures could moderate beginning in April 2018.
“This would allow departments to plan for additional staff and make resources available to fund new policy priorities.”
The National Treasury said most of the spending growth will be directed towards core programmes such as social services and infrastructure to boost economic growth.
Public works programmes that contribute directly to employment will continue to grow rapidly. “Grants that support people living with HIV/AIDS will increase by an annual average of 13.6% each year.
“Greater emphasis will be placed on improving spending quality and implementing cost-containment measures.” –