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Pretoria - The government wanted a “slightly larger” budget deficit to support economic recovery and job creation, Finance Minister Pravin Gordhan said on Tuesday.
He said the deficit would surge to 5.5% of the gross domestic product (GDP) in 2011/12 as slowing growth of the world economy would lead to lower-than-forecast revenues.
He said, however, the budget deficit would narrow steadily towards 3% over the next three years.
“Our tax revenue collections have not yet recovered from the effects of recession and so our counter-cyclical fiscal stance allows for a temporary increase in borrowing,” Gordhan said.
“Higher borrowing must be carefully managed: capital markets are volatile and debt service costs are already the fastest growing category of expenditure.”
The country’s budget deficit had been growing fast in the past few years but has been within acceptable limits.
However, economists have warned that an ever-increasing budget deficit would not be good for the country’s economy in the future.
Gordhan said: “Over the medium term, government spending continues to grow… Over the long term, government will reduce debt to restore sustainability.”
The National Treasury on Tuesday said government spending was higher than ever before, constituting a “greater proportion” of GDP than at any time since 1994.
2012 budget over R1-trillion
Non-interest spending rose by 8.2% of GDP from 2002/03 to 2009/10. The 2012 budget will see spending exceed R1 trillion.
Since the 2009 downturn, more than R120bn in spending has been financed by debt.
“In the face of a weak economic environment, government proposes a moderately expansionary budget to support economic recovery and employment,” Gordhan said.
“Slowing growth in the world economy and its effect on South Africa will result in lower-than-forecast revenues.”
This has lessened the fiscal space available for responding to future events.
“While expenditure grows in real (albeit moderate) terms over the medium-term expenditure framework (MTEF) period, government will ensure that fiscal sustainability is reinforced,” he said.
- Fin24
He said the deficit would surge to 5.5% of the gross domestic product (GDP) in 2011/12 as slowing growth of the world economy would lead to lower-than-forecast revenues.
He said, however, the budget deficit would narrow steadily towards 3% over the next three years.
“Our tax revenue collections have not yet recovered from the effects of recession and so our counter-cyclical fiscal stance allows for a temporary increase in borrowing,” Gordhan said.
“Higher borrowing must be carefully managed: capital markets are volatile and debt service costs are already the fastest growing category of expenditure.”
The country’s budget deficit had been growing fast in the past few years but has been within acceptable limits.
However, economists have warned that an ever-increasing budget deficit would not be good for the country’s economy in the future.
Gordhan said: “Over the medium term, government spending continues to grow… Over the long term, government will reduce debt to restore sustainability.”
The National Treasury on Tuesday said government spending was higher than ever before, constituting a “greater proportion” of GDP than at any time since 1994.
2012 budget over R1-trillion
Non-interest spending rose by 8.2% of GDP from 2002/03 to 2009/10. The 2012 budget will see spending exceed R1 trillion.
Since the 2009 downturn, more than R120bn in spending has been financed by debt.
“In the face of a weak economic environment, government proposes a moderately expansionary budget to support economic recovery and employment,” Gordhan said.
“Slowing growth in the world economy and its effect on South Africa will result in lower-than-forecast revenues.”
This has lessened the fiscal space available for responding to future events.
“While expenditure grows in real (albeit moderate) terms over the medium-term expenditure framework (MTEF) period, government will ensure that fiscal sustainability is reinforced,” he said.
- Fin24
