Class notes
Chapter 7 - Public expenditure and growth
- Course
- EKN 310
- Institution
- University Of Pretoria (UP)
Public expenditure and growth
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Chapter 7Public Expenditure and Growth
7.1 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.
7.1.1 The 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.
Property of GB do not distribute
, o The rights of citizens in the Constitution extend to mixed and merit
goods (not only pure public goods)
7.1.2 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.
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
7.2 The 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)
Property of GB do not distribute
, 7.2.1 Size and growth of public expenditure
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 is 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.
7.2.2 The changing economic composition of public expenditure
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.
Property of GB do not distribute
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