Treasury has been forced to make painful revisions to the latest Medium-Term Budget Policy Statement, which updates government's spending plans over the next three years, after its expectations in the February Budget turned out to be over-optimistic.

Government now expects to earn almost R57-billion less in taxes than it previously forecast. Much lower commodity prices (due in part to a Chinese demand) hit mining profits, while loadshedding, Transnet's woes and weak local growth also weighed on other tax income.

Treasury also didn't fully budget for a 7.5% public sector wage hike, which has added billions to government spending this year. Some 55 000 civil servants now earn more than R1-million a year.

Concerns about South Africa's economic and fiscal outlook - along with its greylisting, its controversial relationship with Russia and much higher interest rates across the world - have pushed higher the cost of government borrowing. Investors are now demanding much higher interest rates from SA: government's weighted cost of borrowing has increased from 8.3% in February to 9.5% in October.

This has increased debt service costs by R52-billion above the budgeted amount. Out of every R5 collected in tax, R1 is now being paid to lenders. Government is now spending more on paying debt that on basic education or on health. Debt-services costs are expected to grow by almost 9% per year.

Government debt is now expected to peak at almost 78% of GDP - from a previous forecast of 73% - by 2025/26 - much higher than in most emerging markets.

In response, the medium-term budget set out a number of interventions:

Tax hike ahead

Treasury is budgeting for a R15-billion tax increase in the February Budget. It has not yet been confirmed what shape it will take - whether it will be a VAT or income tax hike (or a combination), for example.

Spending cuts

Treasury has already cut budgets for housing and other services in this year, and has warned that government budget spending may be reduced by more than R120-billion over the next two years.

Spending increases on social development (+2.6%), health (+3.1%), and learning and culture (+3.5%) will be below inflation in this period.

In the civil service, some positions will be frozen and head counts in "non-critical areas" will be reduced, Treasury officials told News24.

Big plans to shrink the state

In line with President Cyril Ramaphosa's pledge in the State of the Nation address earlier this year, government departments and agencies will be reduced and merged, Treasury said, while "outdated and unproductive programmes" will be cut.

More details will be announced at the February Budget.

New rules and a new Treasury agency for private investment

Treasury announced that it will change regulations and municipal legislation to make it easier for private companies and international finance institutions to invest in South African infrastructure projects, also on a local level. Private investment in electricity transmission infrastructure and upgrades to railway lines, among other projects, will be fast-tracked, said Finance Minister Enoch Godongwana.

The details will be announced in February, but officials say the changes will make it simpler for large international funders, like the so-called Brics Bank, to allocate money for specific, ring-fenced projects. New mechanisms through which private-sector investors and multilateral institutions can co-invest with government for selected infrastructure projects will be created.

A new support agency will also be established in Treasury to manage a pipeline of projects.

R350 grant lives on

The Covid-19 social relief of distress grant will be extended for another year until March 2025 at a cost of R34-billion, "while government considers social security policy reforms and a funding model", Treasury said. It also announced that social grants will see inflation-linked increases in 2024/25 and 2025/26.

Stricter Eskom debt relief

In February, Treasury announced that...