Government has set short-term interventions to stabilise debt by addressing expenditure, said Deputy Finance Minister David Masondo.
Addressing the J.P.Morgan South African Opportunities Conference in Cape Town on Monday, Masondo said government has set a goal to close the gap between annual non-interest spending and annual revenues by 2022/23.
"We have already identified around R50 billion of spending reductions in the next two years, and the outer year of the Medium Term Economic Framework (MTEF) will contain spending that grows no more than in-line with CPI," he said.
However, he said, this is not enough.
"A primary balance will also require an additional R150 billion in reductions. As a matter of policy we have also decided that this should not come from service delivery and investment components of spending. The opportunity is ripe for us to not only cut spending but also improve the composition of that spend; and ensure that the majority of our budget is allocated to growth enhancing spending."
Government, he said, needs to revive the infrastructure expenditure program focusing on areas including health, education, energy and transportation.
"Government needs to continue to invest in human capital enhancing activities and redress inequalities in our society. Wage bill constitutes 35% of the total government expenditure, and 46% of the gross tax revenue. We are working as we speak with our social and political partners to achieve savings in the wage bill, and in this regard we also have to look at a wage-freezes starting with us public office bearers, top managers, executives at all levels of the state if we are to seriously tackle our looming fiscal crisis."
Part of repriotization of government's expenditure would mean moving away from the recent trend of the fiscal budget increasingly becoming a bailout fund for state-owned companies.
"We also have to bring in private-sector participation; and ensure that SOEs that remain in public hands become commercially viable; and rationalize some of them," said Masondo.
Currently a significant part of the country's expenditure does not only go to the wage bill, but bailouts of underperforming SOEs.
The Deputy Minister sad the bailouts have become unaffordable.
"I am sure that investors in the room today would agree with me that if management kept asking for equity injections every financial year you would reassess your investment decision in that particular company. There is no reason for government to behave differently unless there is a clear market failure that needs to be addressed by a SOE," he said.
He added: "I am sure that at this point we as government are beginning to sound like a broken record but we cannot emphasise enough the importance of Eskom to our economy. The liquidity challenge at Eskom needs to be resolved urgently so that the Executive management team will on operational matters to improve the performance of the national utility".
To fix Eskom's capital structure, he said, government needs to reduce the debt component.
"This will require all of us to come up with innovative solutions. National Treasury, the Department of Public Enterprises and Eskom are working together on this important matter and we are hoping to provide much anticipated details on our coordinated plan in the near future. This coordinated plan will also take into account the broader energy sector plan and we will engage all stakeholders including labour unions accordingly," he said.
The power utility's debt is a symptom of a deeper problem related to Eskom's cost structure, its business model, as well as revenue generation and collection. Eskom is owed R25 billion by municipalities.
"Municipalities cannot continue to provide free electricity and other services to non-indigent of our population, including government departments and SOEs.
"The appointment of a new Eskom CEO is encouraging and we all now need to rally behind him and his Executive management team as they work towards turning the national utility around.
"Furthermore, restoring good governance and creating sustainable business models is critical. We should also consider that SOEs cannot receive blank cheques; there must be strict conditions in place. Performance of the SOEs against these strict conditions needs to be based on clear KPIs communicated upfront. SOEs must also share in the pain of any fiscal adjustment."
He urged delegates to rally behind government's efforts to extricate the country from the financial quandary.
"I would like to make a call to all of you to say 'Masibambaneni Mzansi'. Our challenged economic situation calls for us to work together towards a common goal - inclusive and sustainable economic growth as the theme of this conference requires us to do," he said.
He added: "Realising inclusive and sustainable economic growth will require us to build strong growth coalitions and alliances with labour, business, government and civil society. As our rugby national team recently reminded us, we are indeed stronger together and can achieve a lot more if we work together".