Spending growth to be 'well contained'

2012-10-25 14:07 - Mzwandile Jacks

Pretoria - Spending growth will be well contained over the medium term with key social and economic programmes continuing as planned, Minister of Finance Pravin Gordhan said in parliament on Thursday.

But the recession had forced the government to add more than R1 trillion to its debt, and revenue collection was expected to be R5bn less this year than the February estimate.

“This fiscal policy will narrow the budget deficit from a projected 4.8% of GDP (gross domestic product) in 2012/13 to 3.1% of GDP in 2015/16. This will enable government to rebuild the fiscal space,” Gordhan said.

In addition, policy objectives will include ensuring that expenditure grows at a moderate pace, with no upward adjustment of the spending projection set out in the 2012 budget over the first two years of the medium-term expenditure framework (MTEF).

“Policy objectives will also include 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,” Gordhan said.

“Improving the impact of spending, including by shifting the balance of resource allocation towards investment in infrastructure, is also another policy objective of the government.”

He said government debt would be stabilised at about 39% of GDP in 2015/16.

“South Africa’s fiscal response to the global economic crisis has been among the strongest in the world. Government spending expanded from 28% to 34% of the GDP in the wake of the recession,” he said.

“Our deficit widened by 6% of GDP between 2007 and 2011. We were able to sustain spending programmes even as revenue fell, partly because our fiscal position before the crisis was so healthy.”

According to Gordhan, as the economic context changes over the medium term government will realign its policy stance, firmly grounded in a sustainable budget structure that promotes growth, equity and employment.

“If the economic environment deteriorates, government will need to reconsider current expenditure and revenue growth plans,” he said, adding that in a lower growth scenario, an appropriate balance between spending restraint and new revenue initiatives would be necessary.

In either case, the necessary adjustments will avoid an unwarranted early withdrawal of the fiscal support, he said.

 - Fin24


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