Summary
Chapter 7 summary
- Course
- EKN 310
- Institution
- University Of Pretoria (UP)
Summary of 12 pages for the course EKN 310 at UP (Chapter 7 summary)
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Chapter 7Public expenditure and growth
Constitutional framework
Supreme law of SA → provides important guidelines on how SA citizens should conduct
themselves in economic and political situations.
Constitution → provision for government expenditure (G) and taxes (T) = basic paradigm
within which budgetary policies are formulated by government → highlights why
corruption and state capture are serious issues.
Corruption and state capture → funds are misused for personal gain at the expense of
who the Constitution intended the funds to go to → intentions of the constitution are
jeopardizes and contradicted.
Constitution and public goods:
- Provisions in the constitution → direct or indirect effect on extent and composition
of G
- Functions of government → derived from and structured according to
constitutional distinction → distinctions include: judicial, executive and legislative
branches; national and provisional government, security services and
constitutional entitlements and statutory bodies (Public Protector, Human Rights
Commission, Auditor-General and Independent Electoral Commission)
- Constitution charges government with tasks of maintaining them? And providing
for public funding → done by assigning powers and functions to functions of
government.
o Failure on these parts is unconstitutional → therefore important that the
constitution is respected and protected by SA citizens.
- Obligated to provide/make provision for goods and services → provisions can be
found in the Bill of Rights → right of citizens to adequate education, housing,
healthcare, food, water, security etc.
o The rights of citizens in the Constitution extend to mixed and merit goods
(not only pure public goods)
Constitutional entitlements:
- Constitutional entitlements → rights of certain goods and services granted by the
Constitution.
- Government is subject to budgetary constraints → phrases such as “reasonable
measures” and “within its available resources” are unclear → this wording provides
government with too much discretionary power → leads to excessive spending
and may threaten macroeconomic stability → provide everything and disregards
affordability.
o E.g right to life and right to access health care → case → patient tried to
force government to provide expensive treatment at the expense of the
state → court ruled that everyone has a right to healthcare, but it is limited
depending on the cost and availability of the resource.
o
Notes by Georgia Taylor EKN 310 1
, - Fiscal view → case made for a ruling that government obligations to citizens
should be extended to include future generations → current attempt at fulfilling
obligations should take full account of the impact it has on future GDP growth
and government revenue growth → government revenue is a necessary condition
for maintaining the supply of public services overtime.
- Future growth of GDP depends on current provision of services (education and
healthcare) → steady and consistent supply of these services are met within a
timeframe may help resolve conflict between constitutional entitlements and
macroeconomic affordability.
- MTEF (medium term expenditure framework) = NB
Size, growth, and composition of public expenditure
General government expenditure → includes outlays of national government, provincial
governments, local authorities, and extra-budgetary institutions (excludes spending of
public corporations e.g Eskom, Telkom, Transnet)
Size and growth
- Measurements of government spending: total amount of resources used and total
amount of resources mobilised.
- Share of resource use increase at diminishing rate → even larger decrease in long-
term real economic growth.
- Graph analysis: see graph on page 122.
o General government spending clearly grew significantly.
▪ Resource use increased from 21,1% of GDP to 27,4%
▪ Resource mobilisation increased from 28,2% to 36,8%
o Decrease between mid-1990s and 200s → due to fiscal restraint and
relatively good economic growth.
o Government spending in increasing steadily as a share of GDP → implies
that the share of private sector of the economy is declining.
o In 2017 government was responsible for a higher portion of aggregate
spending than in 1992
Changing economic composition of public spending
- Economic classification of government spending → distinguish between current
and capital components of total outlays.
- Economic composition → expenditure is either a current component (salaries,
wages and normal expenditure, services, grants etc) or capital component
(purchase of capital goods, anything that contributed towards the expansion of
infrastructure)
o Cuts across all the different functions of government (capital functions →
(e.g healthcare, electricity and water services, education, higher
education))
- See table 7.1:
o 2017 → cash payments for operating activities were 92,8% of SA
government spending.
Notes by Georgia Taylor EKN 310 2
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