R30bn

THE GOVERNMENT has revised its spending plans, because of weak economic growth and lower-thanexpected revenue collection.

Finance Minister Pravin Gordhan yesterday also lowered the expenditure ceiling to ensure the Budget deficit was contained – resulting in the reprioritisation of about R30 billion in planned government expenditure – largely to higher education, social protection and health, to ensure that core expenditure was protected.

Gordhan said tax revenue had lagged behind the economy, leading to a R30bn shortfall compared with the Budget estimate a year ago.

“The revenue shortfall is mainly in personal income tax, value added tax and customs duty. This reflects slower growth in wages, employment and bonus payouts last year, among other factors,” he said.

The Budget review revealed that the government had reduced the expenditure ceiling by R26.1bn over the next three years by trimming non-core goods and services and compensation budgets.

The review said consolidated public expenditure was expected to increase by an average of 7.9 percent a year to R1.8 trillion by 2019/20 from R1.4 trillion in 2016/17.

This translates to real annual expenditure growth of 1.9 percent, which is lower than the annual average of 2.3 percent growth between 2013/14 and 2016/17.

It said a significant portion of funding had been reprioritised to safeguard the provision of social services, bolster public health programmes, mitigate the increasing cost of higher education for students from low and middle income households and maintain infrastructure investment.

“Apart from debt service costs, post school education was the fastest growing spending category followed by health and social protection,” the review said.

The sources of reallocated funds were the contingency reserve, provisional allocations made in last year’s Budget that were included in the mediumterm expenditure framework (MTEF) but were not allocated to departmental baselines, and from the National Skills Fund (NSF).

“In consultation with the Department of Higher Education and Training, government agreed to use the NSF’s reserves to fund the shortfalls in university education for 2017/18.

“The carry-through costs of these shortfalls – R5.3bn in 2018/19 and R5.7bn in 2019/20 – are funded from other sources.

“In addition, government has made a R5bn provisional allocation to higher education in 2019/20,” it said.

The review added that lower growth estimates in the number of social grant beneficiaries meant that allocations to grants could be reduced by R1.2bn over the next two years while protecting grant values from inflation. Shortfall compared with the Budget estimate last year

It said the proposals would also reduce the spending by national departments on noncore goods and services such as travel, subsistence and catering and there were significant reductions in transfers to public entities, particularly those with large accumulated reserves.

The review said there would also be large reductions in transfers to the SA Revenue Service, the Passenger Rail Agency of South Africa, the SA National Roads Agency, the SA Social Security Agency, the National Housing Finance Corporation and the Water Trading Entity.

It also proposed the reduction in the total salary bill of national departments while large conditional grants to provinces and municipalities were also being trimmed.

The review said the compensation budget limits in national departments should be reduced by an additional R437 million in 2017/18, R471m in 2018/19 and R497m in 2019/20.

“Existing headcount and recruitment must be managed within the adjusted ceiling.

“The public sector wage bill has increasingly crowded out other areas of expenditure, limiting government’s ability to improve the composition of spending in favour of capital budgets,” it said.

The six items with the largest nominal growth in expenditure over the MTEF period are debt service costs (10.5 percent), post school education and training (9.2 percent), health (8.3 percent), social protection (8.2 percent), human settlements and municipal infrastructure (8 percent) and economic infrastructure and regulation (7.8 percent).

Expenditure on health will grow from R170.9bn in 2016/17 to R217.1bn in 2019/20, driven mainly by the expanded provision of anti-retroviral treatment, which now reached 3.5 million people.

Spending on social protection is set to rise from R164.9bn in 2016/17 to R209.1bn by 2019/20, an annual average growth rate of 8.2 percent over the medium term.

Gordhan said spending on basic education would be more than R240bn next year or 17.5 percent of the consolidated budget.

Expenditure on basic education is expected to increase from R216.9bn in 2016/17 to R268.8bn in 2019/20, accounting for 17.5 percent of government expenditure.

Road infrastructure expenditure is expected to increase from R40.8bn in 2016/17 to R47bn in 2019/20.