Budget Speech 2018 Fiscal Framework

 

At the time of the MTBPS, government debt was shown to be on an unsustainable path. Debt-service costs were also projected to rise, crowding out social spending.

 

Despite an improved outlook, government still faces a revenue gap of R48.2 billion in the current year, which carries through to the outer years of the medium-term expenditure framework.

 

In addition, the December 2017 announcement of fee-free higher education and training entails large new allocations over the medium term.

 

In response, government has made significant changes to the fiscal framework.

 

Firstly, new tax measures raise an additional R36 billion in 2018/19, mainly through a higher VAT rate and below-inflation adjustments to personal income tax brackets

 

Secondly, the expenditure ceiling has been revised down marginally from what was presented in October.

 

However, the small revisions are underpinned by large reductions and reallocations. Over the next three years, the spending framework includes:

 

Taken together, and supported by a strengthened growth outlook, these interventions will stabilise public finances.

 

The consolidated deficit is projected to narrow from 4.3 per cent of GDP in 2017/18 to per cent in 2020/21.

 

The main budget primary deficit closes over the medium term, helping to stabilise the gross debt-to-GDP ratio at 56.2 per cent of GDP in 2022/23, and declining thereafter.

 

These fiscal proposals will cause economic discomfort, but they are necessary to protect the integrity of the public finances.

 

Acting now to strengthen the fiscal position will improve the outlook for the economy and increase space for future investment growth.

 

It is the right thing to do.

 

We dare not borrow irresponsibly, leaving it to future generations to repay.

 

Our fiscal interventions also demand greater efficiency in the use of funds across the public sector.

 

Government recognises the need to shift spending away from consumption towards higher investment.

 

Over the past decade, the public sector has invested R2.2 trillion in economic and social infrastructure.

 

Yet weaknesses in project preparation, execution and delivery have resulted in lengthy delays and cost overruns.

 

To improve this, government has established a Budget Facility for Infrastructure, to standardize and improve the management of public infrastructure projects.

 

To support higher levels of capital investment and maintenance, the state needs to contain the public-service wage bill.

 

Government is working to ensure that the current wage negotiations process results in a fair and sustainable agreement.

 

This process will require careful consideration from all stakeholders.