Cape Town - On one level the medium-term budget policy statement for 2012 held no material surprises, said Arthur Kamp, economist at Sanlam Investment Management on Thursday, reacting to Finance Minister Pravin Gordhan's presentation in parliament.
"The increase in the projected deficit for 2012/13 (to 4.8% of gross domestic product from 4.6% expected in February 2012) and in the subsequent two years was to be expected, given weaker than expected GDP and hence revenue growth outcomes.
'Around the world it is increasingly accepted that growth in the post-recession environment is likely to remain moderate for an extended period. Even so, the revised deficit projections still rely on a sustained, relatively firm domestic economic upswing.
"The National Treasury expects real GDP growth to accelerate to 3.0% in 2013 from 2.5% in 2012 and further to 3.8% and 4.1% in 2014 and 2015 respectively. And yet, the deficit only shrinks to 3.7% of GDP by 2014/15 (compared with the February 2012 estimate of 3.0%).
"Any unexpected downturn would create a problem. We need some luck," he said.
Kamp also said: "The slippage in projected budget deficits from 2012/13 to 2014/15 is entirely explained by revenue shortfalls. Importantly, consolidated expenditure projections were left unchanged. However, budgeted expenditure shows far more moderate increases in compensation than witnessed in recent years.
"Consolidated compensation expenditure, which accounts for almost 36% of total consolidated expenditure, is expected to advance at 9.3% in the current fiscal year – significantly higher than the 7.1% expected in February 2012.
"Over the next three fiscal years the treasury expects compensation to increase by around 6 to 7% each fiscal year. This implies limited real wage growth per worker and/or little room, if any, for additional employment growth.
"Encouragingly, efforts at introducing cost savings are bearing fruit, but, even so, the treasury has dipped into the contingency reserve (included in budget estimates for unforeseen expenditure) to keep the overall level of expenditure unchanged.
"In February 2012 a contingency reserve of R5.8bn was projected for 2012/13, followed by R11.9bn and R24.0bn in 2014/15. It is wise to have a contingency reserve and if needed it should be used.
"Note, however, the contingency reserve amounts for 2013/14 and 2014/15 have now shrunk to R4bn and R10bn respectively. Increasingly, there is no room to manoeuvre on the expenditure front. So, we need discipline in addition to luck," Kamp said.
He ended by saying: "The national treasury reminds us that their track record is one of fiscal prudence – and it has right to do so.
But, there are risks as South Africa needs a sustained firm economic upswing to meet its deficit and debt level targets (with gross loan debt expected to stabilise at a little more than 42% of GDP over the medium term) with no room for slippage in expenditure. Time will tell."