Cape Town - Government would maintain a countercyclical fiscal policy over the next three years by growing expenditure to bolster job creation, the Minister of Finance Pravin Gordhan revealed today, while warning that revenue collection is expected to be R13 billion off target.
Tabling the Medium Term Budget Policy Statement in Parliament, Gordhan said the budget deficit would rise to 5.5% in the next financial year as a result of lower-than-projected revenue, before declining to a deficit of 3%.
He said by 2014/15 a moderation in spending growth, combined with a recovery in tax revenue will reduce the deficit enough to stabilise debt-service costs as a percentage of Gross Domestic Product (GDP).
"This will allow government to rebuild fiscal space to address future economic downturns and provide resources for development in a sustainable manner," he said.
The government collected revenue of R758.4 billion (including R674.1 billion in tax) in the 2010/11 financial year, 27.6% of South Africa's GDP of R2.75 trillion and up on 2009/10 revenue which amounted to a slightly lower 27.2% of GDP (R2.44 trillion).
But he said estimated gross tax revenue had been revised downwards by R13 billion to R728.6 billion for 2011/12, largely as a revision in net VAT receipts to R187.5 billion - R13.4 billion below the 2011 budget estimate because of an underestimation at the time of the budget.
Gordhan said despite a 12.6% growth in tax revenues in the 2010/11 financial year compared to the previous financial year, revenue collection for the current year and the forecast for 2012/13 reflect weaker economic conditions.
However, he said, as the business cycle turns over the next three years revenue performance would pick up.
Budget revenue has been revised down by R10.3 billion in 2011/12 and by R18.8 billion in 2012/13.
Total gross loan debt has grown from R627 billion or 27.1% of GDP in 2008/09 to R990.6 billion or 36% of GDP in 2010/11.
Foreign debt has come down from 15.5% of gross loan debt in 2008/09 to 9.9% in the last financial year.
As a consequence of the wider deficit the government is expected to borrow R181.2 billion in the next financial year.
The government's borrowing requirements are expected to come down to about R150.4 billion in 2014/15.
Gordhan said debt issuances over the next three years would be maintained at current levels by drawing on cash balances and exchanging debt maturing within the next several years for longer-dated debt.
Government spending as a share of GDP has risen from 27.2% in 2002/2003 to 33.8% of GDP in 2009/2010.
Since 2008/2009 public expenditure has continued to rise, but at a more moderate pace.
Last year, government expenditure made up 32.2% of GDP and is projected to rise to 32.9% this financial year, before decreasing slightly to 31% by 2014.
In preparing the 2012 Budget departments are expected to identify savings that will contribute to financing the government's targeted outcomes.
Total government expenditure, including expenditure on interest, is expected to rise 8.4% between the current financial year and 2014/2015.
The cost to service state debt, which is expected to increase by 14.4% between the current financial year and 2014/2015, is the fastest rising of all components of the budget.
The second fastest rising cost is on economic infrastructure, including transport, communication and energy, expected to increase 9.5% over the same period.
Education, with a revised estimate of R190.8 billion or 19.5% of the total R978.8bn of government expenditure for the current financial year, remains the largest category of expenditure.
This is followed by social protection at R147.8 billion (15.1%) for the current financial year, local government and housing at R121.5 billion (12.4%) and health services at R113.2 billion (11.6%).
Of the R811.2 billion in government revenue, national government is expected to this year be allocated R377.8 billion, provinces R291.7 billion (including R71.5 billion in conditional grants) and municipalities R70.1 billion.
With changes to the baseline, national government has been allocated R2.3 billion less than laid out in the 2011 Budget, while provinces get an additional R5.3 billion.
