Publications
Partners
Cape Town - As expected, Finance
Minister Pravin Gordhan did dwell in his budget on the extent to which the
South African economy has been transformed since 1994, the streamlining of administrative processes and the successes achieved in the past two decades.
As was the case with President Jacob Zuma in his State of the Nation address, it was only to be expected with an election three months away.
As regards the figures and plans for the next three years, he mostly kept to those of last October’s Medium-Term Budget Policy Statement – no increases in expenses and other figures, like in many previous years.
No wonder then his budget is described by some as uninspiring, a damp squib, dull, predictable, boring and typical for Gordhan, with no big surprises.
But is stabilisation and not rocking the boat not exactly what should be expected from a responsible and sensible minister of finance in a tight fiscal situation combined with disappointing growth ?
Business always wants certainty and stability, and to know what it is in for. When there are too many unknowns, too much uncertainty and too many unresolved aspects, as economist Iraj Abedian once said, businesses either move out or “when in doubt, they chicken out”. They sit it out because it is irresponsible to gamble.
In that sense what may be Gordhan’s last budget was business and investment friendly, as was his emphasis that it is the private sector that must drive employment and economic growth.
Gordhan did rein in spending without creating shocks – non-interest expenditure growth will average less than 2% per year over the next three years. The budget deficit has surprisingly been brought down slightly from October’s projection and Gordhan is definitely very aware that fiscal discipline is important, and that the markets and rating agencies are watching with a hawk’s eye.
The risks remain the rather big budget deficit and rising state debt. If growth forecasts disappoint – and there are people who say that the figures over the next three years are too optimistic – the government will be in trouble. The vulnerable rand is also worrying.
Gordhan has used up all the fiscal space created in the early years of the century and which resulted in a budget surplus in 2007 and 2008. Monetary policy has already been tightened to tackle rising inflation. Should fiscal policy then also be tightened faster?
One thing is sure: populist pressure to spend more is not something that will bother Gordhan. Last year he put caps on expenditure with cabinet’s approval for the first time, and this year he said that even a new administration will keep to those curbs.
At a press conference Gordhan the politician talked of
all the “noise” in South Africa and that it is easy to say and promise things when
you do not have the responsibility of governing. “The government will ensure
continuity (never mind who the minister of finance is) and is busy with the
implementation of concrete plans.
"I am therefore optimistic regarding the next five years. But we must all invest and create a positive environment and not talk ourselves down,” he said.
Gordhan perhaps did a good job in restoring confidence and
predictability in the difficult past five years. The budget can however support
growth only partially.
Some structural and implementational reforms are needed to get the economy onto a higher growth path. For this to happen the government as a whole should be responsible, accountable and hard-working.
