Expect unhappy public servants and higher taxes.

Like most household budgets, government is running out of money and credit lines and the only choice now is to cut consumption and still try squeeze a bit more out of taxpayers. In the words of Finance Minister Nhlanhla Nene, “consumption-led, debt-financed economic growth of recent years has reached its limit.”

Giving his medium-term budget speech in Parliament, Nene certainly sounded very serious about cutting government consumption – how successful he will be is still to be seen but this is what he plans on doing:

Cuts in government consumption

Major spending cuts are planned for travel, venues, food, consultants and advertising. Budgets for non-essential goods and services will be frozen.

Government employees will no longer look forward to 11% pay hikes – salary increases will be linked to inflation with any “upward adjustments matched by productivity improvements.” Nene made a very clear threat to the public sector about further wage demands by saying that “if increases in wages outpace inflation we will be forced to curtail service delivery or trim staff numbers.” Current wage demands are for around 15% increases so watch out for some strong reaction from the labour movement to this. There will also be no expansion in the number of state employees and any positions that have been vacant for more than a year will be cancelled.

Higher taxes

Bad news for taxpayers – expect some big tax announcements in the 2015 Budget Speech in February. Nene is planning on generating an additional R27bn out of tax revenue over next two years. Some commentators think VAT may increase but the medium-term budget policy statement suggests we could see some movements in the tax brackets with plans to “enhance the progressive character of the fiscal system.” We will find out in February how much more progressive (or aggressive) government plans on being with the tax tables.

No more taxpayers’ money for Eskom and SAA

State-owned enterprises (SOE) such as Eskom and SAA can no longer expect handouts and they will only get money if they have a credible business plan. Nene made it clear that financial support to SOEs will not affect the budget balance – government will rather use funds from “disposal of non-strategic state assets” – which basically means privatisation. He would not be drawn into naming these assets except to say that it would be “areas where government is not supposed to be.”

More money for education and health

While cutting spending on non-essential items, there will be more money for essential services. Over the next three years R500bn, or 11% of the budget, will go to health spending. R640bn will go to education, making up 15% of spending, and R500bn on social protection, of which social grants make up around 85%

Change in immigration policy?

An interesting one-liner in the budget statement suggests a change in policy around immigration with plans for “enacting immigration reform to enable people with skills to work in SA more easily.” This is interesting in light of recent moves by Home Affairs to tighten immigration policy.