Finance Minister Pravin Gordhan says National Treasury will take a measured consolidation approach in order to create conditions that will set the country on a path of rapid economic growth.
Addressing journalists during a media briefing at the Imbizo Centre in Cape Town ahead of tabling his Medium Term Budget Policy Statement (MTBPS) on Wednesday, the Minister said slower growth and declining revenue means government needs to reduce its expenditure ceiling and stabilise debt, while prioritising capital investment.
He said this as National Treasury revised the gross domestic product (GDP) for 2016 to 0.5%, down from the February 2016 budget growth projection of 0.9%.
The Minister said the low growth has had some knock-on effects as a consequence on the revenue side, bringing revenue estimates down to R23 billion.
“There are better prospects for growth next year at 1.7%. In these circumstances of lower growth, lower revenue and pressures on the expenditure side, some of them known, some of them new – how do we steer the ship?
“What government has decided is to undertake what we call measured and balanced fiscal consolidation.
“By that we mean as long as our economy doesn’t grow, as long as our revenue base doesn’t grow, we can’t afford old levels of expenditure.
“We have to do new things and make new choices about where we spend our money, and in particular, keep it high on a deficit numbers, which I think are very credible, keep it high at the rate at which we are managing to control debt overall…”
According to the MTBPS, to create the conditions for more rapid growth, the fiscal policy aims to deliver a measured consolidation that avoids a sharp contraction in expenditure, continues to prioritise capital investment and stabilises national debt as a share of GDP.
Government’s efforts to reduce borrowing have been frustrated by consistent downward adjustments to growth and tax revenue.
Slowing household consumption and falling private sector investment reflect profound uncertainty about the global and domestic economic outlook.
The Minister said in the current environment, building confidence and ensuring a sustainable outlook for the public finances require additional fiscal consolidation – in other words, steps to contain the budget deficit and slow the pace of debt accumulation.
He said government proposes reductions to the expenditure ceiling of R10 billion in 2017/18 and R16 billion in 2018/19, and tax measures to raise an additional R13 billion in 2017/18. Combined with the proposals announced in the 2016 Budget, this brings the total increase next year to R28 billion. Government will also propose measures to raise additional revenue of R15 billion in 2018/19.
The Minister said these measures are expected to reduce the consolidated budget deficit from 3.4% of GDP in the current year to 2.5% in 2019/20.
He said the net national debt is expected to stabilise at 47.9% of GDP in 2019/20, against a February projection of 46.2% of GDP in 2017/18.
“So the delicate balance here is to manage the revenue side and the expenditure side in a way in which we can’t say it is grossly pro-growth, but it is not anti-growth in the kind of context that we find ourselves in.
“While we do this balancing act, the message that is very clear here is that monetary policy and measures are in themselves not enough to place South Africa’s growth and economic trajectory on a different footing.
“What we require is to start synchronising with one another, reinforcing one another but more importantly, implement [this] in an urgent way.
“There must be an unqualified approach on inclusive growth.”