Walking the tightrope

2013-02-27 21:21 - *Jaco Leuvennink
NOT many commentators would have envied Mr Pravin Gordhan his job of delivering a political acceptable budget on Wednesday. Next year is, after all, an election year with the ANC in a bit of a squeeze.

And everybody knows that SA is fiscally caught in what Gordhan called a “revenue squeeze”. 
With economic growth not up to scratch at about 2.5% in the past year, the government will have an estimated shortfall of more than R16bn on his budgeted tax revenue for the past financial year.

The finance minister thus had no room to move to please voters; either an increase in taxes, or a substantial cut in government expenditure, would not have gone down well with important (but different) segments of the South African constituency.

And a substantial increase in the budget deficit could have meant a further downgrading of the country’s credit rating.

But the shrewd Gordhan on Wednesday found a way to not only give tax relief of R7bn to individual tax payers, but also assure South Africans that government spending won't be cut to the extent that citizens will be put in a “position of austerity”.

How did he manage that?

Looking just on the surface he used lower growth in expenditure (2.3% over the next three years compared to 2.9% last year) as well as taking money from the contingency reserve. The deficit was increased marginally, but not too much to upset everybody.

There is thus not much fault to be found with the budget. Knowing the importance of investors and business people to the country Gordhan, made all the right noises to please the financial markets.

He admitted there are instances of extravagance in government spending, but said these are marginal and the government is willing to take tough decisions.

But what if the economy does not recover in the coming years to break the growth barrier of 3% that seems to exist?
Well, Gordhan still has one rabbit up his sleeve.

A review of the complete tax system will be launched this year and leaves the door open for tax increases in the future – perhaps once the election is past us?

One would not quite call the budget an election budget, but sometimes, as the saying goes, things that look too good to be true, are too good to be true.  

 - Fin24

*Jaco Leuvennink is Fin24's budget correspondent. Views expressed are his own.

Visit our 2013 Budget section for full coverage of Finance Minister Pravin Gordhan's National Budget speech.


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