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Cape Town - National Treasury proposes a fiscal guideline to set the expenditure ceiling in the outer year of every fiscal framework, according to the mini budget tabled in parliament on Wednesday.
This fiscal rule of thumb will link the spending ceiling to South Africa’s long-term economic growth projections. Estimates of real long-term growth vary. Over the past 20 years, real gross domestic product (GDP) growth has averaged 3% per year.
The International Monetary Fund estimates real GDP growth of 2.6% in 2020, while the SA Reserve Bank estimates potential output growth at 2.1% in 2017. The expenditure ceiling has been set to grow by 2.5% in real terms in 2018/19.
However, government spending as a whole, according to the mini budget, is set to grow at 7.2% over the medium term, remaining above inflation. This spending growth is led by compensation budgets.
The long-term guideline gives expression to the fiscal principles of counter-cyclicality 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.
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.
