Mister Speaker, in last year’s Medium Term Budget Policy Statement we targeted revenue of 28.6 per cent of GDP, consolidated spending of R1.2 trillion and a deficit of 4.1 per cent in 2014/15.

Since then, the rand has weakened and inflation has picked up. Long-term interest rates have continued to rise moderately, and the Reserve Bank has increased the repo rate by 50 basis points.

These trends reinforce the need to moderate public expenditure, lower the budget deficit and ensure that public sector debt stabilises relative to GDP.

A key pillar of the current framework remains the main budget expenditure ceiling. Non-interest expenditure plans are unchanged over the medium term, resulting in real expenditure growth of about 2 per cent per annum. Within the expenditure envelope, the composition begins to shift from consumption spending towards infrastructure investment. The unallocated contingency reserve amounts to R3 billion, R6 billion and R18 billion over the medium term.

Over the last decade, government spending has doubled in real terms, funding a large expansion of the social wage which now stands at 57 per cent of consolidated expenditure. This progress must be sustained. Our Constitution requires government to devote increasing resources to a rising floor of social and economic rights.

In a period of weak economic growth, the sustainability of the public finances is inevitably tested. Over the last five years government has borrowed more than R1 trillion. Rising global interest rates make it increasingly costly for government to borrow. Lower commodity prices dampen the growth of revenues. A weak rand raises the price of capital goods that government needs for its investment programme, while inflation raises the amount we must pay for goods, services and wages.

Our debt portfolio is well structured, with foreign currency denominated debt limited to about 10 per cent of the total. Our debt markets remain highly liquid and competitive, which means that the impact of short-term swings in capital markets can be absorbed over time. Our first sukuk (Islamic) bond will be launched this year.

Broader public-sector sustainability is supported by large social security fund surpluses, a fully funded government employee pension system, and the improving balance sheets of state-owned companies.

With these pressures in mind, government has adopted a balanced fiscal stance that continues to provide support for the economy, but charts a stronger course towards fiscal consolidation.