AS WE approach Wednesday afternoon's Budget, it seems more certain that Malusi Gigaba will still be finance minister to present it to the National Assembly.
Although the personality and political thinking of an individual adds a certain flavour and focus, the National Budget pretty much has a fixed structure with a three-year medium-term outlook. South Africa regularly receives international accolades for the transparency of its structured budget process and is regarded as a world leader in this regard.
These days a Cabinet committee of ministers, appointed by the president, also considers, advises and makes recommendations on budget allocations. One can expect the new government leadership to have also influenced the content of the budget. According to some news reports, Treasury sources let slip that sweeping and “difficult” choices had to be made.
The budget review explains the policy considerations underlying the numbers in the budget. The document describes three frameworks:
The fiscal framework sets out government’s income and expenditure, or tax revenue and spending projections. It takes into account the economic outlook and forecasts the budget balance for the next three years. If spending exceeds revenue, government has a budget deficit or shortfall, which must be financed by borrowing.
When government borrows money it issues a bond, which entitles the holder to interest payments, referred to in the budget documentation as debt-service costs.
Another framework is the division of revenue which shows how taxes and other resources raised will be shared between the national government (and departments), and provincial and local government.
The third is the medium-term expenditure framework. It provides details of government’s three-year spending plans.
How the money is allocated
In terms of the Constitution, all money received by the national government must be paid into the National Revenue Fund. This includes taxes collected and money borrowed to bridge a budget deficit.
The budget review presents state finances in two ways – the main budget and the consolidated budget.
The main budget shows all expenditure financed from the National Revenue Fund. It covers all transfers to national departments and provincial and local government (last two levels receive an equitable share and conditional grants).
The consolidated budget provides a broader view of the public finances. It includes the main budget and spending financed by sources that are not part of the National Revenue Fund, such as taxes raised by provinces for their own use.
The consolidated budget also includes the spending of social security funds, such as the Unemployment Fund, which are largely funded through statutory contribution levies. It also includes more than 180 public entities, such as the Passenger Rail Agency of South Africa, but excludes state-owned companies like Eskom, Transnet and South African Airways.
These are defined as companies in which the state is the major or sole shareholder. Their revenue comes from the sale of goods and services on the market.
About one-third of local government revenue is transferred from the National Revenue Fund. The remaining two-thirds comes from property rates and utility bills, and this is also excluded from the consolidated budget.
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