Mogajane was taking part in a panel discussion at the University of Cape Town’s Graduate School of Business on Tuesday afternoon. He admitted that National Treasury was put on the spot by then president Jacob Zuma's announcement in December last year that government would begin implementing fee free higher education.
However, he said National Treasury was committed to seeing through its implementation over a five year period, especially if expenditure in the first phase of the policy was effective.
“We were putting the facts out there to say that South Africa was in trouble. Immediately the president at the time announced R40bn worth of intervention measures and it helped us focus. We identified R15bn in tax hikes and R25bn in spending cuts,” said Mogajane.
He said that other than the national fiscus, outside pressure to steer a steady ship for the economy meant that National Treasury could not commit recklessly to a drive as costly as this.
“We knew we had to put certainty to the expenditure story. The R85bn I am talking about comes from that. The budget 2018 is informed by the challenges we identified and [because of that] we are introducing new tax measures. We needed R36bn and considered VAT as an option,” Mogajane said.
He said the country’s outlook had improved considerably and that its current account balance and GDP growth puts South Africa in a more comfortable place than before. These numbers talk to the confidence that Treasury is expressing here, he said.
“If we are being honest, R12.3bn in one year on December 16 for higher education is big talk. We had to do a lot of juggling around. We had to make provisions for essentially what was an under collection of R14.8bn in tax revenue,” he said.
He said when it came to reducing spending in other areas, National Treasury was decisive about taking funds from non-performing projects where the reduction in allocations would be least felt. He said even with the reductions, none of these projects lost a percentage to their allocation which was equal to inflation.
“Free higher education needs us to juggle money. Will the R12.3bn be spent in the way we want it? Most of this comes from TVET and other programmes. It is likely to be unspent and that is what we would want to avoid, because this is a matter of borrowing from Peter to pay Paul in an environment of competing priorities.
“We understand that the VAT increase will be a challenge and we must put in place measures that will buffer that pressure. We have quite a chunk from VAT and personal income tax.
"The R85bn cuts means we cut some provincial and municipal infrastructure projects. But the reality is that even after cuts these projects are increasing in spend way above inflation. This is meant to target underperforming projects,” he said.