Public Sector Governance and Accountability Series: Budgeting and ...

Country Case Study: South Africa 505
BOX 15.1
Improving the Quality of Public Spending
In the first few years after the new constitution was enacted, rapid change in
the structure and management of the budget was accompanied by equally
rapid changes in economic and fiscal policies. The quality of public spending
has improved in several dimensions since 1996.
Improvement in the Aggregates
The conventional deficit has declined from 9 percent of GDP in 1995 to a balanced
position in fiscal year 2005/06, and interest on debt will fall over the
medium term to a projected 9.7 percent of consolidated expenditure
(national and provincial general government expenditure and the social
security funds) in fiscal year 2008/09 from 15 percent in fiscal year 2002/03.
Between 2002/03 and 2005/06, noninterest expenditure grew at an annual
average of 13.5 percent.
Shifts in Distribution of Expenditure
Over the first 12 years of democratic government, the functional distribution of
expenditure has shifted significantly, with social and developmental expenditure
increasing at the cost of defense and business subsidies. At the same time, distribution
of expenditure shifted between households, with the government spending
relatively more on poorer and marginalized communities than in the past.
Between 2002/03 and 2005/06, social expenditure continued to grow
faster than consolidated expenditure overall (at 15 percent compared to 12
percent per year). In fiscal year 2006/07, social services accounted for 60 percent
of noninterest expenditure. Although social security spending fueled the
growth with the expansion of the social security system (average annual
growth of 21 percent per year) between 2002/03 and 2005/06, more additional
funds will be allocated to housing and community development programs
over the medium term. The education sector still absorbs a higher
proportion of funds than any other sector, accounting for 20 percent of noninterest
expenditure in 2006/07, although it grew at a slightly slower rate than
did the rest of the social services sector.
In the later years, the government has also shifted the economic distribution
of expenditure, turning around negative real growth in gross fixed capital
formation of general government. In the consolidation period, spending
on the acquisition of capital assets and capital transfers was reduced. More
recently, however, it has recovered. Gross fixed capital formation by general
government grew by 10 percent per year between 2004 and 2008, compared
to 3 percent growth in employee compensation and 8.4 percent growth in
nonwage expenditure.
(Box continues on the following page.)