Minister Godongwana tabled the 25th Medium Term Budget Policy Statement (MTBPS) on 11 November 2021. WhatsUp asked Andrew Donaldson to write a brief note on Minister Godongwana’s first fiscal policy statement since being appointed finance minister:
Building on the fiscal consolidation theme of recent years, the MTBPS adds another year of strict expenditure restraint while deferring decisions about extending income support or further poverty relief programmes to next February’s budget. Adjustments to spending this year include R10.5 billion for employment and livelihood support programmes, and an additional R20.5 billion for public service wages. For the MTEF period ahead, however, increases in social spending or compensation of employees will only be considered if the growth and revenue outlook improves.
The MTBPS signals that fiscal consolidation will continue until 2024/25, when the debt-GDP ratio is expected to peak at about 78%. Main budget revenue is projected to moderate from 24% of GDP this year to 23.7% in 2024/25. Non-interest expenditure will decline from 26.3% to 23.5% of GDP over this period.
There are some interesting differences between this framework and first MTBPS, tabled on 2 December 2017. GDP was then R619 billion, it is now about 10 times larger in nominal terms – R6.1 trillion. Revenue was 26.2% of GDP in 1997/98 and the deficit was 4%, set to decline to 3% by 2000/01. In 1997, real GDP growth was projected to increase from 2% in 1997/98 to 5% in 2000/01, which turned out to be over-optimistic. This year, GDP growth is expected to average just 1.7% over the next three years, with GDP inflation averaging 3% a year. This might turn out to be over-cautious – the Bureau for Economic Research, for one, expects the recovery to be rather stronger.
The 1997 MTBPS introduced the child support grant. Its extension over time has been the main driver of the changing functional composition of spending, which has seen welfare and social development spending increase from about 11% to over 20% of non-interest expenditure.The 1997 MTBPS introduced the first statutory division of revenue, with Gauteng targeted to receive a provincial equitable share increasing from 14.6% in 1997/98 to 16.2% in 2002/03. Driven in part by population shifts, this trend has continued – Gauteng now gets 21.2% of the share.
Medium Term Budget Policy Statement (MTBPS):
Adjusted Estimates of National Expenditure: