About the 2011/12 Budget

Posted on March 03, 2011

1. Background

The extent to which the South African economy had been protected from the world financial crisis became clear when Minister Pravin Gordhan read his budget in Parliament on 23 February. Economic growth, the basis from which government plans its expenditure allocations and expected revenue, has improved substantially from -1,8% in 2009 to 2,8% in 2010 and Treasury expects the growth rate to excel further to 3,4% in 2011 and 4,5% up to 2013/14. At first glance the budget seems to be “conservative” but only if the rather optimistic expected growth rate is achieved and maintained and the revenue base expands accordingly. If not, public debt will become unsustainable fuelled by deficit/GDP ratios in excess of 6%. The fact is that room for fiscal maneuverability is limited and fiscal policy has to be executed within the margins of a “stable and predictable economic environment, offsetting shocks as far as possible”. The Minister indicated that “fiscal policy will continue to be implemented in a countercyclical manner within a sustainable long-term framework ensuring inter-generational equity considering the cost of long term spending programmes on future generations”. 

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