Budget Speech 2015

A sound budget framework is one of the enabling conditions for implementation of the National Development Plan.

Fellow South Africans, it has now been eight years since the global financial crisis began. In responding to low economic growth, government allowed for continued expenditure growth and a wider budget deficit to cushion the economy from a potential hard landing, resulting in an increased debt burden on the state. Fiscal room created during the economic boom leading up to the financial crisis cushioned us against tax increases as a first response.

Our fiscal rebalancing has included cost containment measures and intensified efforts to improve efficiency in expenditure. These measures are yielding positive results. However, growth performance remains weak and substantial repayments of debt are becoming due. It is now clear that we can no longer postpone consideration of additional revenue measures. In choosing amongst our tax options, the financial health of households and businesses is a primary consideration.

As indicated in the Medium Term Budget Policy Statement, the key features of the budget framework for the period ahead are as follows:

In the budget framework tabled today, a consolidated deficit of 3.9 per cent of GDP is projected for 2015/16, falling to 2.5 per cent in 2017/18.

Consolidated non-interest expenditure will rise from R1.1 trillion this year to R1.4 trillion in 2017/18, which is an average real increase of 2.1 per cent a year. The share of personnel compensation is projected to remain at around 40 per cent of non-interest spending. Interest on state debt will rise from R115 billion this year to R153 billion in 2017/18.

Reductions in budget allocations have been targeted at non-critical activities. Cost containment and reprioritisation measures will limit growth in allocations for goods and services to 5 per cent a year. Spending on catering, entertainment and venues is budgeted to decline by 8 per cent a year, travel and subsistence will be cut back by 4 per cent a year, in real terms. Compliance will be reported by the Auditor-General.

Allocations for critical items such as school books and medicine, for police vehicles’ fuel and for maintenance of infrastructure, will grow faster than inflation.

The budget framework includes an unallocated contingency reserve of R5 billion next year, R15 billion in 2016/17 and R45 billion in 2017/18. This could allow for new spending priorities to be accommodated in future budgets. It takes into account that the economic outlook is uncertain and that both weaker growth and rising interest rates are possible over the period ahead. We are also mindful that public service salary negotiations have still to be concluded. We hope that agreement will be reached in time for salary improvements to be implemented in April.

Over the next three years, the total amount of money owed by government is projected to increase by about R550 billion, to R2.3 trillion in 2017/18. Redemptions on debt issued over the past decade will add R190 billion to the medium term borrowing requirement. Net loan debt of the national government is expected to stabilise at less than 45 per cent of GDP in three years’ time.

South Africa’s liquid capital market and our standing in international markets enable us to meet this borrowing requirement. But we are mindful that debt sustainability requires a prudent budget framework and improvements in both saving and investment.

Our fiscal policy stance recognises that state-owned companies and municipalities will continue to face substantial investment requirements over the period ahead. Moderation in the main budget deficit creates space in the wider capital market for infrastructure financing of both the wider public sector and private businesses.

In addressing these and other fiscal challenges, government is firmly resolved to steer a responsible and sustainable course.