Budget in a nutshell: Gordhan consolidates in difficult period

2016-10-26 14:06 - Jaco Leuvennink
Finance Minister Pravin Gordhan at Parliament to present the mini budget. (Photo: Matthew le Cordeur)

Cape Town – South Africa is in a difficult economic transitional phase and consolidation and balance will be the key words regarding government finances over the next three years. That was the core message Finance Minister Pravin Gordhan had for South Africans when he tabled his medium-term budget policy statement in Parliament.

READ: R17bn over 3 years needed to fund higher education - Gordhan

Main points were an additional R17bn for universities and students over the medium term; a planned total tax increase of R28bn in 2017/18; a downgrade of SA’s economic growth rate for the current year from 0.8% in the February budget to 0.5%; a narrowing of the budget deficit from 3.4% to 2.5% of gross domestic product in 2019/20; and sustaining government spending with containing measures on non-essentials.

Gordhan avoided contentious issues like the future of South Africa’s planned nuclear programme, but the medium-term budget's statement on renewable energy suggests that it should be a focus point.

In a nutshell, Gordhan touched on:

Funding post-school education

Subsidies to universities to grow at 10.9% each year with transfers to the National Student Financial Aids Scheme growing at 18.5%. The overal average growth of post-school education and training is 9.2% per year. This is only surpassed by the growth of debt service costs (10.1%) among all budget items, with social protection and health (both 8.2%) coming in next.

Measured fiscal consolidation

Fiscal policy remains focused on more rapid and inclusive growth. The aim therefore is for measured consolidation that avoids a sharp contraction in expenditure, to continue to prioritise capital investment and stabilise national debt (government debt now exceeds R2trn).

READ: Gordhan admits dampening effect of fiscal consolidation

The expenditure ceiling is reduced by R10bn in 2017/18 and R16bn in 2018/19. Tax measures will raise an additional R13bn next year to bring the total tax increase to R28bn in 2017/18. Measures will also be proposed to raise additional revenue of R15bn in 2018/19. The consolidated budget deficit is expected to narrow around 3.4% to 2.5% of GDP in the outer year.

Action on state-owned companies

Government is closely monitoring South African Airways, the Post Office, the South African National Roads Agency Limited and Eskom, with the aim of stabilising them and mitigating risks. Advisers will be appointed to provide technical assistance as government considers the possible realignment of its airline shareholdings.

READ: Treasury’s SOE liabilities headache

Uncertainty in global and local economy

The global economic outlook remains precarious, with Africa's prospects marked by low commodity prices and falling export revenue. The 2016 growth forecast for sub-Saharan Africa has been revised down from 3% to 1.4%, with big oil producers like Nigeria and Angola especially hard hit. SA’s growth rate for the current year is revised down from 0.8% in February to 0.5% and 1.3% for next year.

Low confidence biggest obstacle to growth

Private investment has fallen across all sectors and capital formation is expected to contract in 2016 for the first time since 2010. Government actions to counteract this include:

  • Finalising a regulatory framework for private sector participaion in infrastructure projects, including initiatives in partnership with state-owned companies.

  • Addressing legislative and regulatory uncertainties that hold back investment in mining, agriculture and key technologoy sectors.

  • Rationalising, closing or selling off public assets that are no longer relevant to government’s development agenda, and strengthening those central to National Development Plan objectives.

  • Concluding labour market reforms.

  • The Presidential Business Working Group and the Consumer Education Project initiative are generating targeted support for the economy through funds to support small business and by offering internships to 1 million young work seekers.

READ: Investment needed for faster growth

Containing spending on non-essentials

The office of the Chief Procurement Officer is working to improve spending efficiency and counter corruption. The Draft Public Procurement Bill will be completed by March 2017 and public procurement systems modernised. Cost containment measures have succeeded and the budgets for essential goods and services have grown by only 2% in real terms.

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