EKN 310
Chapter 7 – Public Expenditure and Growth
Introduction
Chapter 6 focused on Public Choice Theory – how to turn individual preferences
into a collective/ community choice.
Chapter 7 now focuses on Public expenditure and Growth – how governments
mobilize and spend resources in market-orientated economic systems
The Constitutional Framework
The Constitution:
• The constitution is the supreme law, so government must follow it when
allocating resources.
• It is the foundation for all government budgeting (taxation and spending).
• Budget decisions must align with fairness, service delivery and public
welfare.
• Corruption/ state capture is a violation of constitutional goals.
The Constitution and Public Goods:
• The constitution directly and indirectly impacts the extent and
composition of government expenditure.
• Aka how much the govt spends and what it spends on
• The government is structures by
- 3 branches: legislative, executive, judicial
- 3 levels: national, provincial, local
- Institutions: Public Protector, IEC, Auditor-General etc
• These must all be funded so they can be maintained which creates
compulsory government spending.
, • Government must also provide basic goods and services.
• Housing, healthcare, education, water & food, social security
• These are mostly mixed or merit goods.
Constitutional Entitlements
• Constitutional entitlements = rights to certain goods and services
conferred by the constitution.
• The constitution is unclear and vague when it comes to govt budget
- “reasonable measures”
- “within available resources”
• This gives government too much discretion leading to excessive govt
spending and unsustainable fiscal policy.
• Example dealing with right to life and right to access healthcare:
- A man with kidney failure applied for state-funded dialysis
treatment but was refused due hospitals limited resources.
- The CC held that state was not obliged to provide treatment, since
access to healthcare is subject to availability of resources.
• Govt. must balance current needs vs needs of future generations.
• Future growth depends on education & healthcare spending now,
• BUT too much spending will harm future budgets.
• Solution: MTEF (Medium-Term Expenditure Framework) to help plan
spending sustainably over time.
Size and Composition of Public Expenditure
Growth of Public expenditure:
• Govt spending in SA has significantly increased since 1992, in terms of real
spending and GDP.
• So this means govt is using a larger share of the economy and private
sector is shrinking.
• Growth occurs at a diminishing rate.
• Large increases may slow long-term economic growth.
Chapter 7 – Public Expenditure and Growth
Introduction
Chapter 6 focused on Public Choice Theory – how to turn individual preferences
into a collective/ community choice.
Chapter 7 now focuses on Public expenditure and Growth – how governments
mobilize and spend resources in market-orientated economic systems
The Constitutional Framework
The Constitution:
• The constitution is the supreme law, so government must follow it when
allocating resources.
• It is the foundation for all government budgeting (taxation and spending).
• Budget decisions must align with fairness, service delivery and public
welfare.
• Corruption/ state capture is a violation of constitutional goals.
The Constitution and Public Goods:
• The constitution directly and indirectly impacts the extent and
composition of government expenditure.
• Aka how much the govt spends and what it spends on
• The government is structures by
- 3 branches: legislative, executive, judicial
- 3 levels: national, provincial, local
- Institutions: Public Protector, IEC, Auditor-General etc
• These must all be funded so they can be maintained which creates
compulsory government spending.
, • Government must also provide basic goods and services.
• Housing, healthcare, education, water & food, social security
• These are mostly mixed or merit goods.
Constitutional Entitlements
• Constitutional entitlements = rights to certain goods and services
conferred by the constitution.
• The constitution is unclear and vague when it comes to govt budget
- “reasonable measures”
- “within available resources”
• This gives government too much discretion leading to excessive govt
spending and unsustainable fiscal policy.
• Example dealing with right to life and right to access healthcare:
- A man with kidney failure applied for state-funded dialysis
treatment but was refused due hospitals limited resources.
- The CC held that state was not obliged to provide treatment, since
access to healthcare is subject to availability of resources.
• Govt. must balance current needs vs needs of future generations.
• Future growth depends on education & healthcare spending now,
• BUT too much spending will harm future budgets.
• Solution: MTEF (Medium-Term Expenditure Framework) to help plan
spending sustainably over time.
Size and Composition of Public Expenditure
Growth of Public expenditure:
• Govt spending in SA has significantly increased since 1992, in terms of real
spending and GDP.
• So this means govt is using a larger share of the economy and private
sector is shrinking.
• Growth occurs at a diminishing rate.
• Large increases may slow long-term economic growth.
