Budget Speech, 2013The fiscal framework and long-term sustainability |
Mister Speaker,
National development must be coupled with fiscal sustainability, which ensures that the progress we make will not be interrupted or reversed. The government relies on resources derived from the wider economy, and the best way to generate resources is to grow the economy faster and increase the tax base. The NDP targets an annual growth rate of more than 5 per cent a year. This would double the resources available to government in the next two decades.
The present reality is that growth is more modest. The economic turbulence we experienced in the second half of last year has resulted in a revenue shortfall amounting to R16.3 billion. The deficit is now estimated to be 5.2 per cent of GDP in 2012/13. The growth outlook for the next three years has weakened, and government’s net debt is now expected to stabilise marginally higher than 40 per cent of GDP.
In the Medium Term Budget Policy Statement, we noted that if the economic environment were to deteriorate, government would reassess its revenue and spending plans to secure South Africa’s fiscal footing. In the circumstances, our approach involves several elements:
| • | Additional measures to control spending, reducing real expenditure growth to an average of 2.3 per cent over the next three years, compared with 2.9 per cent signalled in October 2012 |
| • | A reduction in the budget deficit to 3.1 per cent by 2015/16, a level consistent with the stabilisation of debt |
| • | Steps to reinforce growth, building on the competitiveness enhancement programme introduced last year |
| • | Initiation of a tax policy review |
| • | A comprehensive review of expenditure, focusing on both spending controls and value for money in government programmes and agencies |
| • | Strengthening the capacity of the state to implement our plans and programmes. |
| • |
Government is committed to remaining within the expenditure ceiling set out in the budget. New policy initiatives over the next three years will be financed from savings, efficiency gains and reprioritisation.
Structural increases in spending require corresponding revenue increases if they are to be financed sustainably. If we succeed in driving growth towards 5 per cent a year and government revenue doubles in the next 20 years, major infrastructure projects and new policy initiatives such as national health insurance and expanded vocational education will be affordable with limited adjustments to tax policy. But if growth continues along the present trajectory, substantial spending commitments would require significant adjustments in revenue and reductions in other areas of spending.
On Parliament’s request, National Treasury has prepared a report that considers fiscal sustainability from a long-term perspective. The report is currently being considered within government, after which it will be tabled for Parliament’s consideration.