The government would maintain a countercyclical fiscal policy over the next three years by growing expenditure to bolster job creation, Minister of Finance Pravin Gordhan revealed on 25 October 2011, while warning that revenue collection is expected to be R13 billion off target.

Tabling the Medium-Term Budget Policy Statement in Parliament, he said that 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%.

Gordhan said that 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. “This will allow government to rebuild fiscal space to address future economic downturns, and provide resources for development in a sustainable manner,” he added.

The government collected revenue of R758.4bn (including R674.1bn 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 that amounted to a slightly lower 27.2% of GDP (R2.44 trillion).

But the minister said that estimated gross tax revenue had been revised downward by R13bn to R728.6bn for 2011/12, largely as a revision in net value-added tax receipts to R187.5bn – R13.4bn below the 2011 budget estimate due to an underestimation at the time of the Budget.

Gordhan said that despite a 12.6% growth in tax revenues in the 2010/11 financial year compared to the previous financial year, revenue collection for the year under review and the forecast for 2012/13 reflect weaker economic conditions.

However, he added, as the business cycle turns over the next three years, revenue performance would pick up.

Budget revenue has been revised down by R10.3bn in 2011/12 and by R18.8bn in 2012/13.

Total gross loan debt has grown from R627bn or 27.1% of GDP in 2008/09, to R990.6bn 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 R181.2bn in the next financial year. Its borrowing requirements are expected to come down to about R150.4bn in 2014/15.

Gordhan said that 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 its upward trend, 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 R190.8bn 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 R147.8bn (15.1%) for the financial year under review, local government and housing at R121.5bn (12.4%) and health services at R113.2bn (11.6%).

Of the R811.2bn in government revenue, national government is expected to be allocated (in 2010) R377.8bn, provinces R291.7bn (including R71.5bn in conditional grants) and municipalities R70.1bn.

With changes to the baseline, national government has been allocated R2.3bn less than laid out in the 2011 Budget, while provinces get an additional R5.3bn.

Source: BuaNews

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