The National Treasury is applying strict financial discipline on departments and public entities as they prepare budgets for the next medium-term expenditure framework (MTEF) for the 2027-2030 period. This is so that the country can continue on its fiscal trajectory of achieving higher primary surpluses, where revenue exceeds non-interest expenditure, which is crucial for reducing public debt and its percentage of GDP, which has reached 78.9%. The budget guidelines issued by the Treasury come at a time of heightened risk to its fiscal objectives. It says a prolonged escalation of the Middle East conflict could entrench a stagflationary environment of high inflation and low growth, tightening domestic financial conditions and delaying interest rate cuts or prompting further hikes. “This could weigh on economic growth and borrowing costs and force difficult trade-offs to ensure the government stays on track to reduce the public debt and restore the public finances to health, while protecting public services and infrastructure investment,” the Treasury said in its guideline document released last week. To achieve its fiscal objectives, the Treasury emphasised that any urgent new priority spending pressures will have to be funded in a way that keeps government on track to meet its fiscal objectives. “If revenues come in higher than expected in the budget, such gains will be used only to reduce debt or address temporary spending needs such as infrastructure investment or urgent spending pressures. They will not be used to fund permanent spending increases,” the Treasury said. The government granted fuel levy relief of R17.2bn in response to the high oil prices resulting from the Middle East conflict. This was funded by lower-than-expected spending and higher-than-expected revenues, so it was fiscally neutral. “Any further relief measures would likewise have to be funded in a budget-neutral manner,” the Treasury cautioned. “With the economy still growing slowly, government must continue to restrain growth in its spending and focus on priority areas,” it added. The MTEF technical guidelines issued each year prescribe the format and approach that departments and public institutions must follow when preparing their budget submissions for the next three years to the National Treasury.The cabinet-approved technical budget guidelines emphasise that additions to the overall fiscal envelope will only be considered for priority interventions if savings have been identified through the targeted and responsible savings (Tars) initiative. This initiative is designed to identify programmes that are not cost-effective, do not deliver on their objectives, or are low priority. They will have to be reduced or closed. The Tars initiative is expected to yield savings that can be used for higher priority spending and better service delivery. The 2026/2027 budget noted that savings of R12bn had already been identified from wasteful or ineffective programmes over the medium-term. Departments will use what is called a programme assessment matrix to evaluate the performance and effectiveness of each programme. “Departments must look first to reprioritise money in their existing baselines to address new spending pressures. Programmes that have consistently underperformed must be considered for reprioritisation,” the Treasury said. Compensation budgets which have placed pressure on departmental budgets and which account for about one third of consolidated budget expenditure will have to remain within the limits set in the 2026 budget, the Treasury stressed. “This implies that departments will need to manage their overall staff complement to remain within budget. Salary adjustments in public institutions should be aligned with the public service wage bill management strategy.” Budget decisions will be guided by a standardised set of criteria. These include the contribution of programmes to economic growth and employment and the protection of core service delivery. National government departments will also have to ensure that policy proposals which provinces and municipalities implement are fully costed and aligned with the fiscal framework to avoid unfunded mandates. The Treasury said the technical guidelines were a response to calls for public money to be used more effectively and deliver better value for money to address national development priorities. The guidelines which apply to all departments, constitutional institutions, trading entities, and public entities signal the start of the budget process which culminates in the three-year fiscal framework that will be tabled in the MTEF statement in October and the budget review in February 2027.