Gordhan: No major increase in spending

2012-10-25 14:57 - Sapa

Parliament - Government spending over the next three years will increase only modestly, Finance Minister Pravin Gordhan said on Thursday.

In his Medium-Term Budget Policy Statement (MTBPS), tabled in Parliament, he urged more efficient government spending and less wastage of taxpayers' money.

Gordhan said the fiscal framework proposed in the document reflected the constraints within which government was operating.

"These constraints make it imperative that we do things differently. To continue serving our people, government departments will need to live within our means. Spending needs to become more efficient and achieve value for money.

"Wastage of taxpayers’ money must come to an end. Corruption in procurement will be identified and dealt with in the strongest possible manner," he said.

Over the past decade, government spending, excluding inflation, had doubled, expanding access to education, health, basic services and social grants.

However, there had not always been a commensurate increase in the quality of public services, or in the performance of the public sector itself.

Making progress in the delivery of public services required greater focus on the use of existing allocations, and a shift in spending -- from current consumption towards capital investment.

These changes were particularly important given the current fiscal constraints.

The proposed spending framework approved by Cabinet took account of the need to control growth in spending, while increasing the efficiency of existing allocations to improve public services.

As a result, the fiscus did not increase available funds beyond the 2012 budget baseline.

Departments had reprioritised spending away from programmes that were not meeting performance requirements or were not closely aligned to departmental mandates.

Government had also asked national and provincial departments to reduce spending where possible over the medium-term, so these funds could be reallocated to infrastructure and other priorities.

Over the next three years, reprioritisation of funds by departments amounted to about R40bn.

This money, combined with drawdowns in the contingency reserve, would allow a revision of budget baselines without any increase in government spending.

Funds were shared between national, provincial, and local government, enabling them to meet the higher costs of the public-sector wage settlement and give effect to government priorities.

According to the MTBPS document, the economy has yet to recover to the higher levels of growth and broadening participation achieved in the years before the 2008 recession.

Sustaining a stronger economic recovery will require both a resolution of global economic problems, particularly the crisis in Europe and weak growth prospects in the United States, and greater progress in addressing South Africa’s structural and economic policy problems.

The South African economy is projected to grow by 2.5% in 2012.

By 2014, GDP growth is expected to reach 3.8%, supported by expanding public-sector investment in infrastructure, the activation of new electricity-generating capacity, improving private-sector confidence, relatively low inflation and interest rates, and strong growth in the southern African region.

To improve confidence in the economy, expand trade and investment, increase employment, and broaden participation in the economic recovery, government will target progress in several areas.

These include, among others, re-establishing orderly labour relations, investing in strategic infrastructure programmes, including energy generation and transport capacity needed to open up new mining and industrial opportunities, speeding up youth employment opportunities, and improving living conditions for miners and upgrading informal settlements.

Others include shifting the export mix towards emerging markets, with particular focus on expanding trade and investment in Africa, and providing agricultural support and promoting small business development.

The document says South Africa’s fiscal framework remains grounded in a sustainable, countercyclical approach to managing revenue and expenditure.

Spending growth will be well contained over the medium-term. Key social and economic programmes will be continued, complemented by efforts to improve the quality of spending.

Fiscal policy will narrow the budget deficit from a projected 4.8% of GDP in 2012/13, to 3.1% in 2015/16, enabling government to rebuild fiscal space.

In addition, three policy objectives will be targeted:

- Ensuring that spending grows at a moderate pace. There will be no upward adjustment of the spending projection set out in the 2012 budget over the first two years of the MTEF, with moderate growth in the outer year;

- Stabilising public debt. This will require a significant reduction in the deficit. The combination of slower spending growth and recovery in revenue as economic growth gathers pace will stabilise debt as a percentage of GDP by 2015/16; and,

- Improving the impact of spending, including by shifting the balance of resource allocation towards investment in infrastructure.

As the economic context changes over the medium-term, government will realign its policy stance, grounded in a sustainable budget structure that promotes growth, equity, and employment.

If the economic environment deteriorates, government will need to reconsider current spending and revenue growth plans.

In a lower-growth scenario, an appropriate balance between spending restraint and new revenue initiatives would be necessary.

The document notes that in either case, the necessary adjustments will avoid an unwarranted early withdrawal of fiscal support.

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