Medium‐term fiscal policy is focused on reducing the budget deficit and stabilising the debt‐to‐GDP ratio. To support this consolidation, government will use a portion of higher‐than‐anticipated tax revenue to narrow the deficit while increasing non‐interest expenditure to support economic growth, job creation and social protection.

Staying the course will enable government to bring fiscal consolidation to a close. In 2024/25, main budget non-interest expenditure will grow slightly above inflation. The consolidated deficit is expected to decline from 5.7 per cent of GDP in 2021/22 to 4.2 per cent of GDP in 2024/25. Gross loan debt is projected to stabilise at 75.1 per cent of GDP in 2024/25.

Significant risks to the fiscal outlook include the introduction of unfunded spending programmes, another economic slowdown, higher borrowing costs, the contingent liabilities of state‐owned companies and higher‐than‐budgeted public‐service wage settlements.

Managing the public‐service wage bill

Compensation spending for national and provincial government grew by 7.3 per cent on average for the period 2014/15 to 2019/20, compared with 6.8 per cent average growth in non‐interest expenditure. This trend crowded out other spending items like goods and services, with a concomitant impact on service delivery. The decision to not implement the final leg of the 2018 wage agreement and other measures to reduce average wage costs have improved the wage trajectory. Medium‐term wage bill growth is projected to be much lower than the original trend. This will contribute to closing the gap between revenue and expenditure, improving the composition of expenditure.

A new round of collective bargaining will begin in March 2022. The National Treasury is working with the Department of Public Service and Administration to keep the compensation baseline within affordable limits. As indicated in the 2020 Budget, compensation baselines will grow at the rate of inflation from 2024/25. Should collectively bargaining result in salary adjustments that exceed compensation ceilings, reductions in headcount will be required.