Cape Town – Despite a projected slow economic growth, the National Treasury has proposed an increase in spending in the long term to sustain debt levels when the economy goes through turbulent times.
The National Treasury made this proposal in its Medium Term Budget Policy Statement (MTBPS) on Wednesday against a projected slow growth of 1.5% in 2015 as the economy buckles under strain due to energy constraints and other external factors.
“The expenditure ceiling remains the primary tool to stabilise debt. No resources will be added to the spending ceiling over the next two years.
“Beginning with the 2016 Budget, government will align spending limits in the outer year of the medium-term expenditure framework (MTEF) with the long-term path of GDP growth, building on government’s countercyclical and sustainable approach to fiscal management,” the National Treasury said.
It will link the expenditure ceiling to the long-term fiscal guideline, which will link spending to projected economic growth.
This means that with growth expected to rise to 2.8% - on condition that government eases electricity, transport and telecommunications infrastructure constraints – by 2018, the expenditure ceiling will grow by 2.5%.
“The long-term guideline gives expression to the fiscal principles of countercyclicality and debt sustainability. It will ensure that spending grows at a stable rate over the business cycle.
“In good times, spending will grow more slowly than the economy, and in bad times, spending will outpace GDP growth. All South Africans will be able to share in the benefits of economic expansion on a sustainable basis.”
The countercyclicality approach was adopted at the height of the 2008 global meltdown, where government increased its spending when times were hard, and slowed it to fall within GDP growth when the economy stabilised.
This helped the country ride the tide, with government rolling out large capital projects, including the construction of stadiums that were used during the 2010 FIFA World Cup.
The National Treasury said the expenditure ceiling should be sufficiently flexible to accommodate large shocks and structural changes to the economy.
“Over the long term, the guideline maintains spending as a stable share of national income. “However, where structural improvements in revenue are apparent, through tax policy changes, improved administration or economic shifts, a corresponding increase in the spending ceiling will be considered.
“Over time, government’s ability to properly appraise capital projects, as discussed on the next page, may also be a factor in the application of the guideline.” – SAnews.gov.za
