Cape Town - Government has proposed a series of measures to narrow the country’s budget deficit from 4.1% this year to 2.5% over the next three years.
After narrowing in 2010 - the year that South Africa hosted the World Cup - and in 2011, the deficit on the current account has returned to a range of about 5.5% of Gross Domestic Product (GDP) over the past two years.
In the Medium Term Budget Policy Statement (MTBPS) tabled in Parliament on Wednesday, National Treasury proposed five elements of a fiscal package.
Among the elements is the reduction of growth in spending. Government will lower its expenditure ceiling by R10 billion in 2015/16 and R15 billion in 2016/17.
The expenditure ceiling has been in place since 2012/13 and since then, government has stayed within its spending targets.
It will also adjust tax policy and administration. In the 2015 national budget, proposals will be introduced to generate additional revenue of at least R27 billion over the next two years.
Long-term planning will also come to the fore with strengthened budget preparation. Emphasis will be placed on longer-term planning and efficient resource allocation within a fiscal framework that links aggregate expenditure and economic growth beyond the medium term.
The headcount of government personnel will be frozen while government will also review funded vacancies.
Government will also adopt a deficit-neutral approach to financing state owned companies, with government over the next two years ensuring that any capitalisation required does not widen the budget deficit.
“Without action to narrow the deficit, public debt will continue to grow beyond the medium term. While prudent levels of government borrowing play an important role in supporting the economy and protecting spending priorities, continued borrowing at the current level is unsustainable. Without an adjustment, it is likely that South Africa’s sovereign debt would be downgraded to ‘sub-investment grade’ risking impaired access to credit markets,” noted the MTBPS document.
Government highlighted that spending on core social obligations will be protected.
“We have reached a turning point. Fiscal consolidation can no longer be postponed. I want to be very clear about the likely impact of what we are doing. Firstly, we remain resolute to protect the poor. So pro-poor spending on social services has been protected,” said Finance Minister Nhlanhla Nene.
Briefing reporters ahead of the tabling of what is also dubbed the mini-budget, the Minister acknowledged that although the measures being proposed might have a mild dampening effect on growth in the short-term, they are an absolute necessity.
“We expect the rate of economic growth to improve over the next several years. The improved outlook is supported by investments currently underway in energy and transport, a gradual pick-up in global growth, rising exports to the rest of the African continent and a recovery in private investment,” said Minister Nene.
Changes to tax policy and administration
Government proposes a structural increase in revenues over the medium term. Policy and administrative reforms will raise at least R12 billion in 2015/16, R15 billion in 2016/17 and R17 billion in 2017/18.
The details of the changes will be announced by Finance Minister Nhlanhla Nene in February when he tables the 2015 budget in Parliament.
“The proposals will enhance the progressive character of the fiscal system, improve tax efficiency and realise a structural improvement in revenue.”
The short and long term implications for economic growth and job creation will be a key consideration to this.
The MTBPS is a government policy document that communicates to Parliament and the country the economic context in which the forthcoming budget will be presented along with fiscal policy objectives and spending priorities over the three-year expenditure period. - SAnews.gov.za
