ATC091110: Report Medium Term Budget Policy Statement (MTBPS)

NCOP Finance

Report of the Standing Committee on Finance on the 2009 Medium Term Budget Policy Statement, dated 10 November 2009


The Standing Committee on Finance, meeting jointly with the Select Committee on Finance, having considered the 2009 Medium Term Budget Policy Statement, reports as follows:


1. Introduction and Background


The Minister of Finance (the Minister) in the fourth Parliament, Honourable Pravin Gordhan, tabled the Medium Term Budget Policy Statement (MTBPS) before Parliament on 27 October 2009. In tabling the MTBPS, the Minister met his obligation under section 28 of the Public Finance Management Act (PFMA) 1 of 1999 that requires the Minister to table multi-year budget projections for revenue, expenditure and key macro-economic projections on an annual basis. In addition to that, the Minister also met his obligation under section 6(1) of the Money Bills Amendment Procedure and Related Matters Act 9 of 2009 (Money Bills Act) that requires the Minister to submit the MTBPS to Parliament.


According to section 6(5) of the afore-mentioned Money Bills Act, the Standing Committee on Finance and Select Committee on Finance (the Committees) must 30 days after the tabling of MTBPS report to the National Assembly (NA) and the National Council of Provinces (NCOP), respectively, on the proposed fiscal framework for the next three financial years. In line with section 6(2), the Committees report on a revised fiscal framework for the 2009/2010 financial year and the proposed fiscal framework for the following three years, and an explanation of the macro-economic and fiscal policy position, the macroeconomic projections and the assumptions underpinning the fiscal framework.


Following the tabling of the MTBPS and the engagement with the Minister, the Committees held public hearings on 03 and 04 November 2009, receiving submissions from a panel of economists, organised labour and organised business. This report reflects the main themes emerging from the engagement with the Minister, economists, organised labour and organised business. This report includes two main sections, namely: Economic Outlook and Policy, and Fiscal Trends and Policy. The former section gives an overview of economic outlook and policy with specific reference to key macro-economic indicators within the context of the current global economic environment. The latter section provides details of fiscal policy over the next Medium Term Expenditure Framework (MTEF) with specific reference to the fiscal stance adopted by government.


2. The 2009 Medium Term Budget Policy Statement


The 2009 MTBPS provides the framework on which the 2010 Budget is to be based. The MTBPS provides all stakeholders with an ideal opportunity for broad public discussion of, and engagement with, longer-term trends in economic policy. Essentially, the MTBPS is laying foundation for the MTEF. The 2009 MTBPS[1] presents the outlook for economic recovery and discusses government’s three-year spending priorities. It also addresses two key policy challenges. The first is to transform the South African economy to enable an expansion of employment alongside a steady growth. The second is to create a culture of responsible stewardship and reform the public service with the aim to improve the public service, which does not yet meet the legitimate expectations of South Africans. In these circumstances, the South African social and economic transformation challenge has to be addressed with renewed urgency.


Implications are that the MTBPS provides an indication of government’s assumptions and intentions, which should improve both planning and budgeting within line-departments as well as overall budget co-ordination, and contribute to the quality of engagement with the budget from civil society and legislatures. This anticipated quality of engagement is expected to strengthen oversight and budgetary efficiency and effectiveness.


3. Economic Outlook and Policy


The tabling of the MTBPS came amidst the slow and uneven economic recovery of South Africa from its first recession in 17 years. Recession in South Africa is accompanied by a budget deficit, higher government spending, higher public sector borrowing requirement (PSBR), lower tax revenue, higher cost of borrowing, negative gross domestic product (GDP) growth and so forth. Mr Jac Laubscher[2] commented that some of the recession indicators are worse than similar recession indicators in 1992 when South Africa was in recession. Table 1 (below) summarises comparison (similarities or differences) made by Mr. Laubscher with respect to recession indicators in 1992 and 2009.


Table 1: Economic indicators


As Percentage of GDP



Budget Deficit






Real Bond Yield



Government Expenditure




Mr Len Verwey commented that the expected macro-economic variables in the fourth quarter of 2009/10 financial year are worse off than initially anticipated at the beginning of the first quarter of the same financial year. Table 2 (below) summarises his observations.


Table 2: Changes in Macro-Economic Variables in 2009/10



First Quarter

Third Quarter

Anticipated GDP Growth



Expected Tax revenue

R740.4 billion

R657.5 billion

Planned Expenditure

R834.3 billion

R841.4 billion

Estimated Budget Deficit




Implications of table 1 and table 2 are that, since the tabling of 2009 Budget in February, the South Africa’s economic environment has worsened. Even more worrying is that some macro-economic variables of 2009 compare poorly to similar 1992 numbers. In the beginning of the 2009/10 financial year, the economic recession was not as severe and the impact of the global financial crisis was modest. Nevertheless, National Treasury is of the opinion that because of early decisions on fiscal policy, inflation targeting, the gradual approach to exchange controls liberation, banking regulation and public spending choices, South Africa was able to minimise the negative impact of the global financial crisis.


The context in which the 2009 MTBPS was tabled was in an economic crisis and a change of administration. It provided the impetus to do things differently. South Africa’s key short term challenge is to support the economic recovery and direct public spending towards key priorities. Government’s medium and longer-term objective is to build a more labour absorbing economy and to transform public service delivery to meet the aspirations of all South Africans. The Minister highlighted that there were signs of an improvement in the economic environment but the recovery is likely to be slow and gradual. The projected medium to longer term macro-economic variables is displayed in table 3 (below).


         Table 3: Longer Term Macro-economic Variables







% Change




Final household consumption






Gross Fixed Capital Formation






Real GDP growth






CPI inflation (%)






Current Account

(% of GDP)







Table 3 shows that, although the consumption demand is negative 3.1 per cent in 2009, it is expected to pick up to 0.9 per cent in 2010 and further grows to 2.3 and 2.5 per cent in 2011 and 2012, respectively. This expected increase in consumer demand is believed to lag economic growth as projected in the same table. However, consumer demand is highly dependent on the level of employment in the country. Therefore, government may design strategies through their national planning unit on how to maintain this demand through decent jobs.


Table 3 suggests that fixed investment is going to be volatile. Fixed investment is expected to increase slightly from 3.5 per cent in 2009 to 4.4 per cent in 2010. Furthermore, fixed investment is projected to increase to 7.1 per cent in 2011 and eventually dampening to 6.6 per cent in 2012. It is hoped that this increase in fixed investment will grow the economy and create decent jobs.


According to table 3, South African economic growth (real GDP growth) is estimated to be a negative growth of 1.9 per cent only in 2009. Then after, real GDP growth in 2010, 2011 and 2012 is forecasted to be 1.5, 2.7 and 3.2, respectively. National Treasury (2009a) expect this improvement because, in the period ahead, South African producers will benefit from a recovery in global demand and higher commodity prices, largely as a result of growth inChina and India. They argue that continuing public sector investment in economic infrastructure provides crucial support to the recovery and is essential to reduce bottlenecks and draw in private-sector investment. In addition to this, National Treasury expects public enterprises’ real fixed investment to grow by approximately 17 per cent over the next three years.


It is interesting to see from table 3 that inflation is expected to fall within the targeted range of 3 to 6 per cent. Low inflation and an increasing private-sector investment (discussed above) are some of the pre-requisites for recovery. Inflation in 2010, 2011 and 2012 is expected to be 6.3, 6.0 and 5.7 per cent, respectively. The higher than targeted 6.3 per cent in 2010 is attributable to higher electricity tariffs and efforts by producers to recoup as demand recovers (National Treasury, 2009a). Thereafter, inflation as indicated in table 3 (above) should fall within the targeted inflation range of 3 to 6 per cent. However, Mr Woody Aroun[3] is of the opinion that South Africa is putting too much emphasis on inflation targeting at the expense of development. He argued that COSATU do not and should not support inflation targeting.


The forecasted current account deficits of 5.7, 6.1 and 6.9 per cent in 2010, 2011 and 2012, respectively, remain a challenge for South Africa which had enjoyed surpluses for several years in the past. However, this is not alarming given the fact that South Africa is embarking on fiscal stimulus like increased government spending in order to mitigate the negative impact of the recession. Ms Gretchen Humphries[4] reported that the Federation of Unions of South Africa (FEDUSA) is of the opinion that economic policy makers reacted in the correct way to the crisis by way of a counter cyclical monetary and fiscal policy.


4. Fiscal Trends and Policy


Fiscal policy guides government’s decisions about revenue, spending and borrowing. South Africa’s fiscal policy enables government to deliver on its developmental mandate by providing resources in a manner that is sustainable and that reinforces the stability of the economy (National Treasury, 2009a). Over the past year, as the global economy experienced a sharp contraction, governments around the world have seen revenues fall rapidly, at a time when people and economies require fiscal support the most. South Africa has been similarly affected and its government has responded by maintaining spending on public finances and stimulating economic growth.


Table 4 (below) summarises the consolidated government fiscal framework, starting from 2006/07 to 2012/13 financial years.



           Table 4: Fiscal Framework: 2006/7-2012/13

Fiscal Year






R Billion





  As a % of GDP












  As a % of GDP











Budget Balance

  As a % of GDP












South Africa’s fiscal discipline in the past has provided sufficient tools for government to minimise the negative impact of the economic crisis. As a result, fiscal and monetary policies have provided significant support to the economy during the recession. For example, table 4 (above) shows that the budget deficit has increased from 1 per cent of GDP in 2008/09 to an estimated deficit of 7.6 per cent as a percentage of GDP in 2009/10. Thereafter, the budget deficit is expected to decrease slightly to 6.2, 5 and 4.2 per cent in 2010/11, 2011/12 and 2012/13 financial years, respectively. In other words, the current higher borrowing is believed to be a temporary solution.


Over the medium term, the deficit will be reduced in order to prevent the servicing of interest payments at the expense of social and economic priorities since the ability to raise additional revenue through additional taxes is limited. Deficit is also expected to decrease over the medium term because tax revenue is expected to increase due to expected economic recovery. All these factors combined are surely going to support fiscal recovery. Generally, economic growth is expected to be partly boosted by reduced interest rate. In other words, co-ordinated fiscal and monetary policies are expected to stimulate economic growth. Ms Gretchen Humphries reported that FEDUSA commended government on the well-timed co-ordination of the fiscal and monetary policy instruments. However, Mr Sidney Kgara[5] reported that the National Education, Health and Allied Workers Union (NEHAWU) is of the opinion that there is no much expansion in the budget over the medium term as only R78 billion will be added in terms of spending on the main budget. He further indicated that the 2009 MTBPS missed an opportunity to enhance the counter-cyclical measures that constitute South Africa’s response to the impact of the global economic crisis as developed at National Economic Development and Labour Council (NEDLAC).


In South Africa, like the rest of the world, the fiscal easing is one of the largest in history. Based on National Treasury’s forecast, the fiscus has been able to mobilise resources in support of the economy without compromising future growth or service delivery, provided that appropriate steps are taken to improve efficiency of resources. According to National Treasury (2009a: 36), the fiscal stance is shaped by the following three goals:

  • Ensuring that sufficient resources are available for government to meet its public service commitments and to provide support to the economy as it moves into its next growth phase;
  • Supporting development and alleviating poverty through current expenditure and investments in future capacity; and
  • Managing an orderly and gradual reduction of the budget deficit towards a sustainable position in a manner that does not compromise the economic recovery. Deficit reduction will result from a combination of automatic adjustments, as tax revenue increases, and a moderation in the growth of government spending.


Ms Prakashnee Govender[6] reported that the Congress of the South African Trade Unions (COSATU) is of the opinion that fiscal and monetary mandates, including interest rates and exchange rates, must promote decent jobs, economic growth and general developmental imperatives. COSATU advised, similarly to National Union of Metal Workers of South Africa (NUMSA), that inflation targeting must be replaced by stance that makes decent employment an overriding policy objective. COSATU defined a decent job as an employment that provides an employee with job security in addition to job income. They subscribe to the permanent nature of employment as opposed to volatile casual jobs.


5. Tax Revenue and Policy


Budget revenue is the amount of revenue available to the fiscus to finance expenditure after taking into account tax revenue, other revenue and transfers to other members of the Southern African Customs Union (SACU). Tax revenue is the largest contributor to budget revenue. Tax revenue is highly cyclical because taxes are levied on economic activity. This means that, if the economy is performing well, more tax revenue will be collected and vice versa. Table 5 (below) displays expected fiscal tax revenue over the medium term.


     Table 5: Tax Revenue

Fiscal Year





R Billion




Personal Tax






Corporate Tax












Fuel Levies






Custom Duties


















Gross Tax revenue

  As a % of GDP












Over the past years, South Africa’s economy has been characterised by strong economic growth, improvements in tax administration and compliance, and the broadening of the tax base. These positive attributes of the economy have, indeed, resulted in strong growth in tax revenue. As reflected in table 5, tax revenues have declined as the economy slowed and it is expected that total tax revenue for 2009/10 will decrease by R70.3 billion from the original estimate of R659.3 billion. According to this table, most of the decline is the result of lower value added tax (VAT) and corporate income tax in line with reduced economic activities, including household spending. As the economy is expected to pick up in 2010/11 financial year, tax revenue, a lagging indicator, is expected to start increasing in the 2011/12 fiscal year. But, there is dire need to support improvements in tax revenue with measures to broaden the tax base.


6. Government Debt


Given the current economic downturn and the sensitivity of tax revenue to recession, government is forced to consider other financing options, namely domestic and foreign borrowing. Government borrows to finance the shortfall between revenue and expenditure.


As per table 4 (above), the increase in expenditure, combined with the decline in budget revenue, results in a projected consolidated budget deficit of 7.6 per cent of GDP in 2009/10. This deficit has to be financed through debt. Table 6 (below) summaries the borrowing requirement of government over the medium term.


Table 6: Borrowing Requirement and Financing

Fiscal Year





R billion




Main Budget Balance






Extraordinary payments






Extraordinary receipts






Borrowing requirement













In financing the consolidated government deficit, national government borrowing is projected to reach R175.8 billion in 2009/10, declining gradually to R145.1 billion by 2012/13.


Table 7 (below) summarises the total government debt over 2009/10 to 2012/13 financial years.


        Table 7: Total Government Debt, 2009/10 – 2012/13

As at 31 March





R billion



Domestic Debt





Foreign Debt





Gross Loan Debt





Less: National Revenue Fund bank balances





Net Loan Debt





As percentage of GDP:

  Total net loan debt

    Of which foreign debt














As a result of borrowing requirements displayed in table 6 (above), public debt is estimated to be 29.2, 34.2, 37.8 and 41.1 per cent of GDP in 2009/10, 2010/11, 2011/12 and 2012/13 financial years, respectively. In other words, public debt escalates from 29.2 per cent of GDP by 2009/10 to 41.1 per cent of GDP by 2012/13. Interestingly, the total net loan debt as a percentage of GDP is expected to be approximately 40 per cent or less over the medium term owing to conservative borrowing by government in the past when South Africa was benefiting from an economic boom. Low levels of borrowing in the past have made it possible for South Africa to increase the level of debt in order to minimise the negative impact of the recession without pushing total levels of debt beyond 50 per cent as a percentage of GDP.


7. Fiscal Sustainability for Continued Development


Sustainability, a core principle of fiscal policy, refers to the ability of government to finance its expenditure over a long period of time (National Treasury, 2009a). A key indicator of sustainability is debt-service costs. If such costs are expected to rise as a percentage of GDP over the long term, the position is not sustainable. An unsustainable fiscal position can be financed in the short term through higher borrowing. However, pursuing an unsustainable fiscal stance for too long will result in ever-increasing debt costs and, eventually, a costly adjustment through lower spending on service delivery and/or increases in tax rates. Honourable Nhlanhla Nene[7] argued that relying heavily on the government to support demand could not be sustained indefinitely and he advised that budget deficit must be curbed. He argued that, while it is appropriate for government to increase deficits during an economic crisis, it must present a credible path back to sustainable budget balance after the crisis has ended.


Table 8 (below) compares revenue as a percentage of GDP to non-interest expenditure as a percentage of GDP over the medium term period.


     Table 8: Revenue and Non Interest Expenditure

Fiscal Year





As a Percentage of GDP








Non-interest Expenditure





Sustainability (or Difference)






Table 8 (above) shows that strong growth in non-interest expenditure and a decline in budget revenue have resulted in a primary balance deficit. The expected stabilisation of growth in non-interest expenditure and rising tax revenue over the medium term will result in a narrowing of the primary balance deficit as follows: 5.2, 3.2, 1.9 and 1.1 per cent in 2009/10, 2010/11, 2011/12 and 2012/13, respectively. Over the medium term, the primary balance deficit is expected to decrease sharply from 5.2 per cent in 2009/10 to 1.1 per cent by 2012/13. In terms of sustainability as defined above, government had the ability to finance its expenditure over a long period of time. This ability has historically promoted a sustainable fiscal position. Implication is that government is stimulating economic activity in a sustainable manner. The magnitude of this success is attributable to prudent management of the fiscus in the past, leading to reduction in the deficit, low debt levels and declining debt-service costs.


Ms. Gretchen Humphries reported that FEDUSA commended government on the clear way in which the development of a macroeconomic strategy beyond the economic crisis as set out in the 2009 MTBPS. However, Ms Prakshnee Govender reported that COSATU cautioned that government constrained expansion to the medium term, which would mean that it would be less responsive to structural trends of poverty, inequality and unemployment extending beyond the recession.


9. Key Issues


The following key issues have been identified from the 2009 MTBPS and submissions from organised labour and organised business:


  • Until recently, the constitutionally-required legislation setting out the procedure for Parliament to amend the budget has been enacted as the Money Bills Amendment procedure and Related Matters Act, 2009. In order to take advantage of this Act, Parliament must be capacitated through the Parliamentary Budget Office as mandated in this Act;
  • The Minister emphasised that government should reduced inappropriate expenditure and eradication of corruption. Emphasis on this point is indicative of the fact that government must get the most value possible out of every allocated rand. Implications are that Parliament, the media, non-government organisations (NGOs) and civil society need to strategise on ‘value for money’ oversight. In other words, value for money is required more than ever. Effective and broad oversight of public finances is expected to be one of the core functions of all committees in Parliament. This effective oversight may include eliminating corruption, waste and ensuring a resolutely goal-driven orientation throughout government as well as amongst those tasked with oversight of its finances and operations. The Money Bills Amendment Procedure and Related Matters Act strengthens the role of Parliament in overseeing performance-orientated public sector;
  • Related to the above-mentioned issue, the establishment of the Ministry of Performance Monitoring and Evaluation came at the time when it is mostly needed given the current economic recession in South Africa. It is critical for this new Ministry to work very closely with all Parliaments’ committees when they are conducting oversight work. The Ministry of Co-operative Governance and Traditional Affairs is expected to work together with Parliament and the Ministry of Performance Monitoring and Evaluation towards the recently launched Operation Clean Audit Campaign; and


10. Committees’ findings


  • Given the fact that the Parliamentary Budget Office in not yet in place, the Committees were not able to fully explore the assumptions on which the fiscal framework is based. In addition, the Committees were faced with capacity constraint to engaged fully with technical issues of the MTBPS
  • The Committees were not able to fully engaged with the public due to time limitations;
  • The assumptions on the fiscal framework will only arise if the economy grows. There should be a continual evaluation of growth in the economy in order to take appropriate measures.
  • The South African economy forms part of the interdependentness of the world economy. There could be unavoidable and unforeseeable global economic developmental issues that may impact on the projected growth path.


11. Conclusion and Recommendations


Having considered the 2009 MTBPS and conducted public hearings, the Standing Committee on Finance and the Select Committee on Finance accept the macro-economic projections and the consolidated revised fiscal framework.


The Committees recommend that the National Assembly and the National Council of Provinces consider the following:


11.1     The setting up of the Parliamentary Budget Office in the near term in order     to support the work of the Finance and Appropriations Committees especially during a ‘value for money’ oversight and accountability. It would therefore be ideal for the Director of the Parliamentary Budget Office be appointed in January 2010;


11.2     The strengthening of a working relationship amongst Parliament’s committees and Statistics South Africa, the newly established Ministries of Performance Monitoring and Evaluation and of Co-operative Governance and Traditional Affairs in order to design and implemented a co-ordinated approach towards ‘value for money’ oversight and accountability;


11.3     The Committees be provided with sufficient capacity in terms of administrative, content and research support in order to fulfil its legislative and oversight function;


11.4     The parliamentary programme should allow for adequate time for parliamentary committees to engage with the MTBPS;


11.5     The National Assembly and the National Council of Provinces should expedite the process of the current Southern Africa Customs Union (SACU) revenue formula that is currently reviewed. As the distribution and transferral of revenue to other member states forms a critical part in terms of the amount of revenue the economy generates.


12. Oral Submissions


Table 9 (below) contains a list of people who made oral and/or written submissions before the Committees, some in their personal capacity.


         Table 9: List of Submissions’ People




Mr. Pravin J. Gordhan

Minister of Finance

National Treasury

Mr. Nhlanhla Nene

Deputy Minister of Finance

National Treasury

Mr. Lesetja. Kganyago


National Treasury

Mr Oupa Magashula



Mr. Kuben Naidoo

Deputy Director General: Budget Office

National Treasury

Mr. Kenneth Brown

Deputy Director-General:

Intergovernmental relations

National Treasury

Mr. Andrew Donaldson

Deputy Director-General: Public Finances

National Treasury

Ms. Marisa Fassler

Chief Director: Macroeconomic Analysis

National Treasury

Mr. Jac Laubscher

Group Economist


Mr. Len Verwey

Budget Manager


Ms. Gretchen Humpries

Deputy General Secretary


Prof. Raymond Parsons

Deputy Chief Executive


Ms. Simi Siwisa

Director: Economic Policy


Mr.Coenraad Bezuidenhout

Business Parliamentary Officer

Business Parliamentary Office

Ms. Prakashnee Govender

Parliamentary Office Coordinator


Mr. Sidney Kgara

Parliamentary Officer


Mr. Woody Aroun

Parliamentary Officer



The written submissions by the above-mentioned organisations are available on request from the Committee Secretariat.


13. References


BUSA, (2009), Medium Term Budget Policy Statement: Presentation to the portfolio Committee on Finance, Cape Town, 4 November 2009.


COSATU, (2009), COSATU Expectations on the Medium Term Budget policy Statement, Cape Town, dated 27 October 2009.


Gordhan, P. (2009), Medium Term Budget Policy Statement 2009’s Speech, Parliament of RSA, Cape Town, 27 October 2009.


Govender, P., (2009), Response to the Medium Term Budget Policy Statement: COSATU, Cape Town, 4 November 2009.


Humpries, G., (2009), FEDUSA Submission on the Medium Term Budget Policy Statement 2009, Cape Town, 4 November 2009.


Laubscher, J., (2009), The 2009 MTBPS: Managing a Fiscal Calamity, Cape Town, 3 November 2009.


National Treasury, (2009a), Medium Term Budget Policy Statement, Pretoria: Government Printers.


National Treasury, (2009b), Medium Term Budget Policy Statement: Presentation to Parliament, Cape Town, 28 October 2009.


National Treasury, (2009c), Adjusted Estimates of National Expenditure 2009: Presentation to Parliament, Cape Town, 28 October 2009.


NEHAWU, (2009), Submission on the Medium Term Budget Policy Statement 2009, Cape Town, 4 November 2009.


Nene, N. (2009), Budget Deficit, University of KwaZulu-Natal, Durban, 5 November 2009.


NUMSA, (2009), Comments on the Medium Term Budget Policy Statement, Cape Town, dated 3 November 2009.


Verwey, L., (2009), MTBPS 2009: A Presentation to the Finance Committee, Cape Town, 3 November 2009.


Verwey, L.; T. Dlamini, S. Durham, and M. Zamisa, (2009), The 2009 Medium-Term Budget Policy Statement: Have We Found New Balance? PIMS Budget paper 5, Idasa.



Report to be considered.



[1] National Treasury (2009), Medium Term Budget Policy Statement, Pretoria: Government Printers.

[2] Jac Laubscher is the Group Economist at SANLAM.

[3] Woody Aroun is the Parliamentary officer for NUMSA.

[4] Gretchen Humphries is the Deputy Secretary-General at FEDUSA.

[5] Sidney Kgara is the Parliamentary Officer for NEHAWU.

[6] Prakashnee Govender is the Parliamentary Office Coordinator for COSATU.

[7] Honourable Nhlanhla Nene is the Deputy Minister of Finance in the Republic of South of South Africa.


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