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NO NATIONAL budget is ever easy - especially at election time.
Throughout the democratic world, pre-election budgets are usually characterised by a desire to provide as much benefit to the electorate as conceivably possible yet also leave the tough decisions to the incoming administration.
And, South Africa’s budget next week will probably be much the same.
No doubt, from a political point of view Finance Minister Pravin Gordhan must find some ways of presenting a relatively upbeat analysis of the state of the nation's economy.
This would then synchronise with President Jacob Zuma’s State of the Nation address in which the refrain “South Africa is a much better place to live in now than 1994” has become the prevailing government mantra.
Expect, therefore, a somewhat glossy massaging of statistics around better employment conditions and better GDP prognostications.
Again, Gordhan will need to re-emphasise the intention to roll out the National Development Plan (NDP) in the future.
With buy-in from the business community, the 400-plus-page document is a key pillar of the ANC’s manifesto.
It will also find favour with somewhat jittery rating agencies that will need to review their last tranche of downgrades later this year.
Infrastructure spend
No doubt, the issue of infrastructure spend will be highlighted.
Not only is this a politically popular allocation on all sides of the political spectrum, but it too plays into the broad NDP philosophy.
Adding to the rules and extensions of export processing zones may also be a positive target for Gordhan's attentions.
But, the budget offers very little opportunity for practical relief for cash-strapped consumers.
Gordhan will continue to monitor the roll out of social income grants that now serve almost 16 million South Africans monthly.
The unintended consequence of this is to lock-in support from the poor for the ruling party.
Tax, e-tolls
Although government finances are always stretched, improved Sars revenue collections will offset any push to increase the rate of VAT above its current 14%.
Anyway, few governments would ever consider this before an election – especially when the already unpopular e-tolls remain in a somewhat shambolic state in Gauteng.
The issue of a VAT increase may still come back to haunt South Africans in the future, as the rate has remain unchanged since 1993.
Its relatively low rate even by African standards must be tempting a raise in the future.
On the broader tax system in South Africa, governments always tread the tightrope of trying to rake in as much as possible while at the same time not discouraging business and income creation.
Income inequality, though, is fast becoming a hot topic both domestically and abroad and a moderate increase to the maximum or upper tax brackets may be seen as an attempt to ameliorate this.
Again, this issue is more conducive to a post-election mini budget, but it may well be raised next week.
While raising tax is critical for generating new government spend, it can also be used as a political ploy to "attack" the rich and be seen as being redistributed to the poor.
What is more likely, however, is for Gordhan to pursue his already stated intention of finalising a review of South Africa’s tax system.
This is with a view to countering many of the avoidance schemes which may still cost South Africa’s fiscus potential revenue income each year.
Labour matters
South Africa’s core problems today are many and varied. It is here where Gordhan’s budget has to arrest perceptions of a slide into the economic doldrums.
It is exacerbated by on-going labour unrest and a seemingly intractable breakdown in confidence between business, the state and organised labour.
Just as Zuma issued a stern warning to both mining bosses and workers to get their house in order, the on-going disruption on the platinum belt and the looming threat of further industrial action in the post election period make this budget a timeous opportunity for Gordhan to speak out.
With increasing rivalry and competition for union membership from both Amcu and alienated Cosatu affiliates like Numsa, government would be well advised to press for a meaningful resumption of dialogue between the factions.
Expect, therefore, some strong words on the current impasse and its consequences for the economy and global perceptions (ratings) from Gordhan.
Rand
While South Africa always discounts the effect of a declining rand, due to the purported increases in exports as a result, our own manufacturing sector has largely declined in its contribution to GDP over the last decade, leaving a limited to a weak currency.
Gordhan will clearly address the current decline of the rand.
It is to be hoped that this will not just be a review of the global factors that impact the currency, but should also hint at domestic policy weaknesses that need to be addressed in order to shore up the beleaguered rand.
An honest assessment of this can go some way in creating positive global perceptions of an economy ready to address its deficiencies rather than simply ascribing blame to external factors.
So, the budget-balancing act continues once again.
This time though, the perceptions of voters, domestic business and global investors all converge together.
Don’t expect dramatic announcements, but an honest approach full of straight talking might do much more good then delivering a populist pre-election address.
Then again, Gordhan is known to tell-it-like-it is – and it may just work.
- Fin24
* Daniel Silke is director of the Political Futures Consultancy and is a noted keynote speaker and commentator. Views expressed are his own. Follow him on Twitter at @DanielSilke or visit his website.
Throughout the democratic world, pre-election budgets are usually characterised by a desire to provide as much benefit to the electorate as conceivably possible yet also leave the tough decisions to the incoming administration.
And, South Africa’s budget next week will probably be much the same.
No doubt, from a political point of view Finance Minister Pravin Gordhan must find some ways of presenting a relatively upbeat analysis of the state of the nation's economy.
This would then synchronise with President Jacob Zuma’s State of the Nation address in which the refrain “South Africa is a much better place to live in now than 1994” has become the prevailing government mantra.
Expect, therefore, a somewhat glossy massaging of statistics around better employment conditions and better GDP prognostications.
Again, Gordhan will need to re-emphasise the intention to roll out the National Development Plan (NDP) in the future.
With buy-in from the business community, the 400-plus-page document is a key pillar of the ANC’s manifesto.
It will also find favour with somewhat jittery rating agencies that will need to review their last tranche of downgrades later this year.
Infrastructure spend
No doubt, the issue of infrastructure spend will be highlighted.
Not only is this a politically popular allocation on all sides of the political spectrum, but it too plays into the broad NDP philosophy.
Adding to the rules and extensions of export processing zones may also be a positive target for Gordhan's attentions.
But, the budget offers very little opportunity for practical relief for cash-strapped consumers.
Gordhan will continue to monitor the roll out of social income grants that now serve almost 16 million South Africans monthly.
The unintended consequence of this is to lock-in support from the poor for the ruling party.
Tax, e-tolls
Although government finances are always stretched, improved Sars revenue collections will offset any push to increase the rate of VAT above its current 14%.
Anyway, few governments would ever consider this before an election – especially when the already unpopular e-tolls remain in a somewhat shambolic state in Gauteng.
The issue of a VAT increase may still come back to haunt South Africans in the future, as the rate has remain unchanged since 1993.
Its relatively low rate even by African standards must be tempting a raise in the future.
On the broader tax system in South Africa, governments always tread the tightrope of trying to rake in as much as possible while at the same time not discouraging business and income creation.
Income inequality, though, is fast becoming a hot topic both domestically and abroad and a moderate increase to the maximum or upper tax brackets may be seen as an attempt to ameliorate this.
Again, this issue is more conducive to a post-election mini budget, but it may well be raised next week.
While raising tax is critical for generating new government spend, it can also be used as a political ploy to "attack" the rich and be seen as being redistributed to the poor.
What is more likely, however, is for Gordhan to pursue his already stated intention of finalising a review of South Africa’s tax system.
This is with a view to countering many of the avoidance schemes which may still cost South Africa’s fiscus potential revenue income each year.
Labour matters
South Africa’s core problems today are many and varied. It is here where Gordhan’s budget has to arrest perceptions of a slide into the economic doldrums.
It is exacerbated by on-going labour unrest and a seemingly intractable breakdown in confidence between business, the state and organised labour.
Just as Zuma issued a stern warning to both mining bosses and workers to get their house in order, the on-going disruption on the platinum belt and the looming threat of further industrial action in the post election period make this budget a timeous opportunity for Gordhan to speak out.
With increasing rivalry and competition for union membership from both Amcu and alienated Cosatu affiliates like Numsa, government would be well advised to press for a meaningful resumption of dialogue between the factions.
Expect, therefore, some strong words on the current impasse and its consequences for the economy and global perceptions (ratings) from Gordhan.
Rand
While South Africa always discounts the effect of a declining rand, due to the purported increases in exports as a result, our own manufacturing sector has largely declined in its contribution to GDP over the last decade, leaving a limited to a weak currency.
Gordhan will clearly address the current decline of the rand.
It is to be hoped that this will not just be a review of the global factors that impact the currency, but should also hint at domestic policy weaknesses that need to be addressed in order to shore up the beleaguered rand.
An honest assessment of this can go some way in creating positive global perceptions of an economy ready to address its deficiencies rather than simply ascribing blame to external factors.
So, the budget-balancing act continues once again.
This time though, the perceptions of voters, domestic business and global investors all converge together.
Don’t expect dramatic announcements, but an honest approach full of straight talking might do much more good then delivering a populist pre-election address.
Then again, Gordhan is known to tell-it-like-it is – and it may just work.
- Fin24
* Daniel Silke is director of the Political Futures Consultancy and is a noted keynote speaker and commentator. Views expressed are his own. Follow him on Twitter at @DanielSilke or visit his website.
