MTBPS – Adjustments and allocations, but who benefits?

The MTBPS primary aim is to state the policy direction that government has taken. However, as part of the MTBPS there are adjustments made to budgets which provide us with an indication of how government uses these adjustments to support its objectives.  Here is the run down of the major adjustments to the 2011/12 budget.

Government will spend about 9 billion less than anticipated

The National Treasury notes that

Taking into account funding set aside in the contingency reserve at the time of the 2011 Budget, projected underspending, savings declared by departments and the adjusted state debt cost estimate, the revised estimate of total expenditure in 2011/12 is R888.0 billion. In February 2011 at the tabling of the budget, provision was made for expenditure of R888.9 billion for 2011/12. (Page 34, MTBPS, 2012)

Under spending by government departments has largely come under control, but with local government’s still struggling to spend funds on infrastructure and other projects. Spending performance by government has however improved over the years, but this remains an area that needs to be urgently tackled. In an environment of low economic growth, there could have been a range of ways to spend all or part of the R 9 billion budgeted. For instance, additional funding could have been provided to the Jobs Creation Trust or to a number of other programmes.

 

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Less government spending, and what the National Treasury intends doing to improve the situation

Does the MTBPS have the right toolkit?

Minister Pravin Gordhan in previous budgets put in place a counter-cyclical strategy to support South Africa due to the impacts of the global financial crises. The recovery in the South African economy has not been as robust as anticipated raising significant challenges. Our economic growth is sluggish and non-interest spending is declining, painting a worrying picture going forward.

Economic Growth

South Africa’s economic growth is more like the developed world, than emerging economies, according to the MTBPS. South Africa is thus projected to underperform in comparison to its peers in other emerging economies and lags behind developing Asia. The choices made by government in the MTBPS will unfortunately continue this trajectory.

Read moreLess government spending, and what the National Treasury intends doing to improve the situation

MTBPS-More continuity, when change is needed

The National Treasury argues that:

The measure of a strategy is not in the breadth of objectives it seeks to address, but rather in its focus on those objectives that really matter. Fiscal constraints force government to choose carefully between competing objectives.

Does the MTBPS have the right toolkit?

This provides a benchmark against which to assess the Medium-Term Budget Policy Statement (MTBPS). The common sense approach is to focus on the level of the deficit. On the one hand, the financial markets will welcome the attempts to reduce the deficit over the medium term, whilst raising concerns about the current perception that debt is high. On the other hand, civil society organisations will argue that more needs to be done, but the deficit will be an indicator that government is attempting to do something during this downturn. There are important public policy choices in this debate, with the National Treasury providing an important input in the Fiscal Guidelines.
However, there is a foundational question – Are the objectives the right one’s? Or more crisply, is the underlying strategy the correct one? To place, this in context South Africa lags behind its peers in terms of economic growth.

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Economic Freedom and Fiscal Policy – Previewing the Medium-Term Budget Policy Statement 2011

Does the MTBPS have the right toolkit?

As Minister Pravin Gordhan delivers governments Medium-Term Budget Policy Statement (MTBPS) for 2011, the debate on economic transformation is gathering pace. In the same week, as the MTBPS is announced both the African National Congress Youth League (ANCYL) and the Young Communist League (YCL) will hold events focussed on economic transformation. These are separate events, and speak to the broader political positioning that sadly is becoming a permanent feature of the African National Congress.
The strategists at the National Treasury will have to consider these events, but will also have to look towards how the market will react.  The biggest challenge is that rating agencies have raised concerns about the level of government debt. Whatever one may think of the ratings agencies – who contributed to the global financial crises by providing good ratings to dubious investments – they wield power within the market, which in turn impacts on investment choices. Moreover, South Africa will be borrowing to finance primarily the expansion of power stations, but potentially in other areas as well. In other words, the perceptions of rating agencies and larger private companies matter. Their opinion should matter less, but the reality is that they have a powerful set of mechanisms to influence public policy and to ultimately impact on economic growth.

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Youth subsidy – Bringing education into the picture

The debate on youth subsidy has gathered pace. The arguments for a youth subsidy consist of two major arguments.
First, the high rates of unemployment amongst youth are exceedingly worrying. As shown in a previous chart on Zapreneur. The key features of the unemployment data by age, show that:
The key features of the data include that:

  • The biggest proportion of unemployed are concentrated in the age groups 15-24 years (29.5%) and 25-34 years (42.8%).
  • Unemployment for those 34 years old and younger accounts for 72,3% of unemployed South Africans.

Youth unemployment thus is a serious challenge, and perhaps the defining challenge that we face.

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