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Overview

• Budget makes a large contribution to transformation and inclusive growth

• Government’s ability to improve citizens’ quality of life depends on investment and economic growth

• Economic growth revised down to 0.7 per cent in 2017, reaching 1.9 per cent by 2020

• South Africa confronts a low growth trap

• Much depends on policy choices and their effective implementation

• Progress registered on 14 actions agreed by Cabinet to revive investment

• Work is under way to license broadband spectrum and optimise the state asset portfolio

• Reforms needed to transform markets, improve national competitiveness and reconfigure urban landscape

• Strong tax revenues, which sustained fiscal consolidation efforts, are now under threat

• Revenue shortfall of R50.8 billion projected in 2017/18

• Consolidated budget deficit is 4.3 per cent of GDP in current year against projection of 3.1 per cent

• Risks to fiscus include rising debt-service costs and public sector wage bill

• Presidential task team to develop proposals to stabilise debt over medium term

• Mandate Paper intended to strengthen alignment of budget, medium-term strategic framework and NDP

• Spending that aims to deliver services to low-income households is protected

• Improved confidence and microeconomic reforms will return the economy to a higher growth rate over time

Economic outlook

In brief

• South Africa’s projected GDP growth for 2017, forecast at 1.3 per cent at the time of the 2017 Budget, has been revised down to 0.7 per cent. Over the medium term, GDP growth is expected to increase slowly, reaching 1.9 per cent in 2020. 

• Despite substantial risks, the global economic outlook is improving, with growth of 3.7 per cent forecast in 2018. Higher global growth can benefit South Africa’s medium- to long-term growth prospects if the country can boost investment and export competitiveness.

• Concerns about policy and political uncertainty, along with weak domestic demand, weigh heavily on business and consumer confidence, deterring investment and job creation.

• Government’s economic policy, guided by the objectives of the National Development Plan, centres on inclusive growth, transformation and competitiveness. Progress has been registered on the 14 confidence boosting measures announced earlier this year. A series of microeconomic reforms would provide impetus to confidence and investment.

Fiscal policy

In brief

• The economic outlook has deteriorated significantly since the beginning of the year. Gross tax revenue for the 2017/18 – 2019/20 period is projected to fall short of the 2017 Budget estimates by R209 billion. 

• The consolidated budget deficit will widen to 4.3 per cent of GDP in 2017/18, against a 2017 Budget target of 3.1 per cent of GDP. Gross national debt is projected to reach over 60 per cent of GDP by 2022, with debt service costs reaching 15 per cent of main budget revenue by 2020/21. 

• The expenditure ceiling could be breached by R3.9 billion in the current year, mainly as a result of government’s recapitalisation of South African Airways and the South African Post Office. Government is considering the disposal of assets to offset these appropriations during the current year. 

• Additional risks to the framework include more financial demands from state-owned companies, public service compensation pressures and new spending commitments, particularly in higher education. 

• A presidential task team is considering a range of steps to bring the public finances back onto a sustainable path. Announcements will be made at the time of the 2018 Budget.

 Expenditure priorities

In brief

• Medium-term spending plans have been developed in the context of weak economic growth trends, limited budgetary resources and rising pressures on the fiscus. 

• Over the three-year spending period ahead, consolidated expenditure will grow by an annual average of 7.3 per cent, from R1.6 trillion in 2017/18 to R1.9 trillion in 2020/21. The fastest growing functions are Community Development, Learning and Culture, and Health. The fastest growing category of expenditure is debt-service costs, which grows by 11 per cent. 

• Government will protect spending on core social programmes that benefit poor South Africans. Funding for any new policy priorities will come mainly from reprioritisation. 

• The division of non-interest expenditure between national, provincial and local government remains stable at 47.6 per cent, 43.2 per cent and 9.2 per cent respectively.

Author Unknown
Published 25 Oct 2017 / Views -
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