Stabilising government's debt will come with difficult decisions, and the public sector wage bill is the main area where government will impose reductions aimed at returning public finances to a stable position.
The National Treasury said this in its Medium-Term Budget Policy Statement (MTBPS) on Wednesday, in which it proposes steps to reduce the fiscal deficit and stabilise the debt-to-GDP ratio over a five-year period.
This as National Treasury looks to make spending reductions of R60 billion in 2021/22, R90 billion in 2022/23 and R150 billion in 2023/24 - mostly falling on compensation.
"Large fiscal adjustments and an improving economic outlook will narrow the budget deficit by 7.3 percentage points of GDP over the medium-term expenditure framework (MTEF) period, and by an additional 1.8 percentage points in the subsequent two years.
"The aim is to reach a main budget primary surplus by 2025/26. This target is expected to result in debt stabilising at 95.3% of GDP in the same year."
The National Treasury said the impact of the COVID-19 economic contraction on South Africa's public finances will be felt for years to come.
Although the economy has begun to recover from the hard lockdown, tax revenue in the current year is projected to be R8.7 billion lower than the June estimate.
"Gross debt is projected to reach 81.8% of GDP in the current year, up from 65.6% projected in February 2020.
"Returning the public finances to a sustainable position requires large adjustments. Government spending remains too high for the tax base - and this gap has likely increased as a result of the 2020 recession."
In its Fiscal Risk statement, the National Treasury said over the last 15 years, public-service compensation spending has grown at an unsustainable rate that is nearly 1.5 percentage points faster than the rate of growth of GDP, largely because of increases in average remuneration.
The result is that public-service compensation now accounts for the equivalent of 11% of GDP, up from 9% in 2004/05.
"Without a major reduction in public spending, debt will continue to accumulate and interest payments - which already consume 21 cents of every rand of main budget revenue - will crowd out other spending.
"Debt stabilisation involves difficult decisions, with short-term costs for the economy and the fiscus.
"To partially offset the effect of the spending adjustment, government has weighted the largest share of reductions to the wage bill, while supporting capital grants and the Infrastructure Fund."