1 / 10

Budget Management and Public Financial Accountability Programme

This programme, presented by Matthew Simmonds, Chief Director of Fiscal Policy in South Africa's National Treasury, discusses the recent fiscal policy in South Africa, its impact on economic growth and employment, and the challenges for the future.

taylorh
Download Presentation

Budget Management and Public Financial Accountability Programme

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. CABRI and World Bank Institute Training Programme Budget Management and Public Financial Accountability Presented by: Matthew SimmondsChief Director: Fiscal Policy National Treasury, South Africa

  2. South Africa is an upper middle income country • Per capita GDP of US$ 4,798 • Similar income levels to Malaysia, Chile, Argentina, Turkey, Poland • Economic growth of over 5% • Has accelerated from lower levels • Unemployment remains very high • But recent economic success has boosted employment growth

  3. Recent fiscal policy divided into 4 periods 1989 - 1993: late apartheid • Fiscal policy very expansionary • Large deficits: • Global slowdown in 1992 • Politically motivated expenditure • Limited political legitimacy to increase tax revenue further • Political isolation limited access to foreign capital • Therefore had to run a current account surplus to access foreign exchange • Monetary policy needed to protect the exchange rate (high interest rates, high inflation) • Fiscal + external constraints + monetary = short-run boom/bust cycles

  4. Recent fiscal policy divided into 4 periods (cont) • 1993 – 1996: Transition • Reconstruction and Development Programme (RDP) • Large deficits • Driven by need to begin addressing historical inequalities • Effort to meet basic needs • Demand driven growth impetus • Deficit seen as important element of growth • Multiplier effect • Wage bill accelerated strongly • However: • Economic growth remained subdued • Negative employment growth • Debt costs continued increasing

  5. Recent fiscal policy divided into 4 periods (cont) • 1997 – 2000 Consolidation • Growth, Employment and Redistribution (GEAR) • Policy informed by need to stabilise macro economy • High deficit resulting in interest eroding productive expenditures • Interest costs crowding out private sector investment • Inflation pressures eroding stability, competitiveness, and incomes • Interest costs come down with a lag • GEAR successful in stabilisation, however: • Economic growth subdued • Negative employment growth

  6. Recent fiscal policy divided into 4 periods (cont) • 2001 – 2004 Expansion • Fiscal consolidation under GEAR provided room for fiscal expansion • Strong real growth in expenditure • Main focus: • Welfare grants • Capital expenditure • Lower interest rates and inflation keep interest costs declining • Employment growth recovers • However: • Growth remains subdued

  7. Recent fiscal policy divided into 4 periods (cont) • 2005 – 2006 The economy comes to the party • Strong growth in expenditure continues • Main Focus: • Infrastructure • Education • Criminal/Justice sector • Strong economic base leads to exceptional revenue performance • Deficit declines • Interest costs continue to decline • Employment continues to grow positively

  8. Revenue reform and effort played a key role • 1994 independent commission on taxation. • Rationalise income tax brackets (individuals) and exemptions (corporates) • Single VAT rate • Strengthen tax administration • 1995 customs and tax administration unified in independent revenue authority (SARS) • Administrative reform, SARS effort, economic growth have allowed: • Successive and progressive reductions in PIT • Reduction in CIT from 40% (1995) to 29% • Tax dividends from 25% (1995%) to 10% • Aggressive trade liberalisation in late 1990’s

  9. Expenditure consolidation allowed four current expansion • Burden of consolidation carried by: • Compensation of employees (initially), goods and services, subsidies, (capex) • Post consolidation: • Debt service costs continued to create fiscal space • Goods and services, compensation of employees recovered • Fiscal space allowed for growth in social benefits and capital

  10. Current account balance Financial account balance 10 8 6 4 2 per cent of GDP 0 -2 -4 -6 -8 1995 1997 2000 2003 1996 1998 1999 2001 2002 2004 2005 2006 What next? • 2007 budget shows: • Economic environment strong • Tax revenue remains buoyant • Non-interest expenditure growing strongly • Interest costs continue to decline • However: • Economic environment is unbalanced: low savings, current account deficit and reliance on foreign capital inflows • Therefore • Fiscal position has been improved: balanced budget in support of national savings, current account.

More Related