Writing Rights

Note: This document is intended to serve as a brief synopsis of key allocations and comments made in the Medium Term Budget Speech to Parliament on 27 October, and the accompanying documents, by Finance Minister Pravin Gordhan. It is intended to stimulate further debate, and is in no way intended to provide political or personal comment.  It focuses on certain key areas, in line with priorities outlined by the Minister.

Further debate and general discussion is encouraged in the comments section of this post.

1. What is The Medium Term Budget Policy Statement (MTBPS)?

The MTBPS is a Cabinet policy statement tabled in Parliament about three months before the annual budget. It sets out the economic context and assumptions that inform the following year’s budget, as well as the framework in which the budget is prepared.

The budget framework consists of the fiscal framework, government spending priorities, the division of resources between national, provincial and local government, and a tabulation of the major conditional grants. The budget framework enables national departments, provinces and municipalities to prepare their detailed budgets for the following year. South Africa has a multi-year budgeting process, so the framework covers the present year and the three subsequent years.

The fiscal framework sets out government’s revenue projections, spending estimates, borrowing requirements and assumptions concerning debt interest costs over the period. The medium-term expenditure framework is government’s broad three-year spending plan. The MTBPS also provides a report on spending for the first six months of the fiscal year in which it is tabled.

Parliament plays a critical role in the budget process and is responsible for approving all appropriations, following any amendments. Government departments can only spend money that is appropriated by Parliament for a specific purpose.

Parliament conducts public hearings on the MTBPS. These hearings cover the economic forecasts, the fiscal framework, revenue assumptions, spending priorities and the division of revenue. Section 6 of the Money Bill Amendment Procedure and Related Matters Bill regulates the process by which the MTBPS is processed in the legislature. Parliament can recommend changes to the division of revenue.

(Treasury, 2009)

2. What were the highlights of this year’s MTBPS?

Below are a number of key comments (some quoted but generally paraphrased) made by Minister Pravin Gordhan in his speech to Parliament, as well as in interviews following and preceding the event.

Five medium term priority areas

1. Creating jobs
2. Enhancing the quality of education
3. Improving health outcomes
4. Emphasizing rural development
5. Fighting crime and corruption

Economic Policy & Growth

• There is “room for engagement on and review” of economic policy, but fiscal prudence will not be scrapped
• The MTBPS is premised on “looking beyond the (current) crisis to tackle the longer-term crisis of poverty and inequality; through job creation, education, skills development, healthcare and rural development”
• There is a room for debate on industrial policy – there should be discussion around promoting a greater focus on labour intensive sectors
• Government and private sector must work towards not investing in sectors that are ultimately uncompetitive, but rather reallocate resources where they will be more profitable
• Changing inflation targeting bracket from its current 3% – 6% is up for discussion, but there will be no change for the time being.  Low inflation levels are said to be crucial in improving international competitiveness, economic growth and employment
• New measures will be introduced to reduce trade barriers with other SADC states
• Exchange controls will be lessened in order to increase the ease of doing business, weaken the Rand, and promote confidence in the economy and, by extension, stimulate foreign investment
• Government must streamline and optimise sourcing and delivery of services.  An example drawing on HIV treatment was used: “expensive AIDS drugs currently cost an arm and a leg, when in fact they could be obtained for a sixth of the cost”

Government Expenditure

• The South African economy is expected to contract 1.9% in 2009, contrary to 1.2% expansion forecasted by Trevor Manuel in the national budget earlier this year.   It is forecasted to grow 1.5% next year, and 3% in 2012/13
• Reduction in “unnecessary and wasteful expenditure” and corruption is vitally necessary – a cost cutting target of R27 billion in government expenditure over next three years has been set
• Public spending is to remain constant despite R70.3 billion shortfall
• The budget deficit is to rise from 1% last year to 7.6% of GDP, rendering this year’s deficit the highest in 40 years, and placing fiscal stimulus package amongst the largest (as a proportion of GDP) in the world
• Public sector borrowing is to rise from 3.8% to 11.8% of GDP
• Government debt (as a ratio of GDP) is to climb from 23% this year to 41% in 2013
• Interest payments on debt incurred will increase from R 53 billion last year to R100 billion in 2013
• The deficit will decrease to 4.2% by 2013
• $ 40 billion is to be stored in official reserves
• Demands for additional funding for Eskom in order to lessen the proposed 45% electricity consumer price hikes in each of the next three years was rejected
• Public entities are all being reviewed to check if they are necessary and effective
• R200 million in additional funds are to be channelled to the SABC

Health

• Public health expenditure is set to rise from R90 billion this year to R115 billion in 2012/13
• Government expenditure on the HIV/AIDS programme will receive an additional R5.4 billion over the next three years
• There will be a R900 million additional allocation for HIV ART rollout
• Treasury forecasts that by the end of march 2010, 900 000 people will be on ART
• An additional R5.4 billion will be allocated to HIV/AIDS conditional grant programme
• No commitment to securing additional donor funds for ART
• No timeframe is set for implementation of National Health Insurance (NHI)
• Public-private partnerships in the health sector will be stepped up, and a new quality assurance system will monitor service delivery improvement and compliance of norms and standards.

Rural Development

• At provincial level, total spending on rural development is projected to rise from about R6 billion at present to about R8 billion in 2012/13
• R1 billion in additional funds will go to the Land Bank

Education & Skills Development

• Education will continue to claim the largest portion of government spending
• Spending is to increase from R140 billion this year to R185 billion by 2013
• New schools workbook programme is to provide supplementary learning materials to 5.5 million school learners by 2012
• Funding for the primary school nutrition programme will be increased to reach 8.6 million children in 2012/13.
• More retrenchment workers training though R2.4 Billion training lay-off scheme
• Aim to increase further education enrolment to 20% of 18-24 year olds over next five years
• Cumulative target of 350 000 industrial (and related) apprenticeships and scarce skills learner ships

Social Welfare

• Child Support Grant threshold is to increase from 15 years to 18 years of age
• Inter-ministerial task team (including SARS, Treasury, UIF and SASSA) has been  assembled to discuss wider reform of the social insurance system

Safety & Security / Policing

• Police spending is to increase from R78  billion to R100 billion
• 22 447 new police officers are to be deployed over coming year

3. Further Reading

The full budget speech and accompanying documents (including individual department budget votes) can be downloaded from the Treasury’s website, at:

http://www.treasury.gov.za/documents/mtbps/2009/default.aspx