(in the pic - Minister Gigaba flanked by Deputy Minister Buthelezi, SARS commissioner Moyane and DG Mogajane) Minister Melusi Gigaba delivering his Midterm Budget Speech in the National Sssembly, Cape Town. 25/10/2017, Elmond Jiyane, GCIS

JOHANNESBURG - Infrastructure  expansion, land reform, job creation and small business development will be some of the government’s expenditure priority areas in the next three years, with the government’s total expenditure expected to grow by an annual average of 7.3percent, from R1.6trillion in 2017/18 fiscal year to R1.9trln in 2020/21.

Other key expenditure areas outlined yesterday by the National Treasury in the Medium-Term Budget Policy Statement (MTBPS) are an integrated plan to fight crime, youth development, comprehensive social security, education and skills. Minister of Finance Malusi Gigaba yesterday said the department estimated infrastructure expenditure of R948billion over the medium-term expenditure framework (MTEF).

State-owned enterprises were expected to spend R402bn of the infrastructure expenditure, with municipalities' spending on infrastructure projected to be R197bn and provinces expected to spend R208bn over the MTEF. South Africa’s education sector was expected to spend R44bn on building new schools, refurbishing existing schools as well as libraries and laboratories.

Gigaba said the government had embarked on a number of new initiatives in infrastructure in order to improve the quality of infrastructure spending. “The cabinet has approved a budget facility for infrastructure, which aims to overcome shortcomings in planning and execution of large infrastructure projects. It has begun considering proposals in, among others, water, rail development, broadband, magistrate and high court construction and refurbishment,” Gigaba said.

However, he warned that structural increases in expenditure to accommodate new policy initiatives and resulting adjustments to the spending ceiling would need to be matched by parallel tax increases. Worryingly for the government, the MTBPS showed that debt-service costs were the fastest-growing category of expenditure, crowding out social and economic spending.

By 2020/21, the government projects that nearly 15percent of main budget revenue would go toward servicing debt - up from a low of 8.8percent in the 2008/2009 fiscal year. In hard cash terms, the government’s budget in funding its debt obligations is projected to rise from R163bn this financial year to R223bn in the 2020/21 fiscal year.

John Ashbourne, an Africa economist at Capital Economics, said yesterday the structure of South Africa’s public debt suggested that the country’s fiscal position was even stronger than it appears. “We estimate that debt servicing costs absorb about 12percent of South Africa’s government revenues. This is about average for sub-Saharan Africa, and a bit lower than the ratio seen in Latin America,” Ashbourne said.

The National Treasury said that stabilising gross debt below 60percent of gross domestic product (GDP) over the coming decade would require spending cuts or tax hikes amounting to 0.8percent of GDP.

It further projected that in 2018/19, 0.8percent of GDP would amount to R40bn. Meanwhile, the government’s gross loan debt is expected to increase from R2.5trln or 54.2percent of GDP in 2017/18 to R3.4trln or 59.7percent of GDP in 2020/21.

The Treasury said that in the absence of higher economic growth or additional steps to narrow the budget deficit, the debt-to-GDP ratio was unlikely to stabilise over the medium term.

Gigaba said a team of ministers reporting directly to the president was considering a range of proposals to bring the public finances back on to a sustainable path. He said announcements on these proposals would be made at the time of the 2018 Budget expected in February.

The government’s expenditure ceiling has been lowered by R7bn in the 2018/19 financial year and R15bn in the 2019/20 period on the back of reductions to the contingency reserve.

In the current financial year, the government expected expenditure to breach the ceiling by R3.9bn. It attributed the projected breach of the ceiling to large appropriations for South African Airways and the South African Post Office. Combined, these allocations amount to R13.7bn.

Gigaba said that the government was considering the disposal of assets to offset these appropriations and that, if such disposals take place, the breach of the ceiling would not happen. He added that over the medium term, the government was committed to maintaining the ceiling on non-interest expenditure.

“New spending priorities will have to be met by funds reallocated from within existing limits. Any adjustments to the ceiling itself would need to be matched by revenue increases.”