FINANCE Minister Nhlanhla Nene proved with his first National Budget that he is a cautious, prudent man who wants to continue in the National Treasury’s set tradition of balance in deciding where to get money from and what and who to spend it on.
He clearly does not want to rock the boat – especially not in difficult times with sluggish economic growth. He would probably like to be remembered for being reliable and balanced. In interviews the day before the budget and during the pre-budget press briefing when journalists already had sight of all the documentation, he even tried his best to tell everybody it was a boring budget with no big surprises.
His necessary income tax increases (mainly involving the rich) were modest, and he kept spending under control without too many curbs on growth boosting programmes. An example is the R10.2bn allocated over the next three years to manufacturing incentives and support for growing service industries.
READ: Budget in a nutshell
Although still high at 3.9% of GDP (compared to the estimated 3.6% of February last year), one can’t be too upset about the budget deficit – especially while it is estimated to come down to 2.5% within the next three years. Debt levels are also high but still manageable.
Nene’s only shock was the massive increase of 80c in fuel levies. He will nevertheless get away with it because of the big fall in oil prices and consequently also local fuel prices. But what will happen if the oil price rises again or the exchange rate of the rand deteriorates further? That approximately 40% of the price we pay for fuel goes to the government is unacceptable, especially because it affects almost every other price we pay in the marketplace.
Not hiking vat a missed opportunity
At the pre-budget press conference Nene said that the raising of the VAT rate will be up for discussion with the Davis Tax Commission this year. If necessary it will be raised, he said. But why did he not take the plunge to increase VAT to bring in enough extra tax money to deal more decisively with the big budget deficit and the negative impact of too much debt?
That would have laid to rest all fears of further downgrading by the international rating agencies.
In October’s mini budget Nene spoke courageously about the necessity to place fiscal accounts on a firm footing, and said fiscal consolidation can’t be postponed any longer. Although he certainly did not abandon his October package of fiscal measures, ordinary South Africans might be ready for some bigger shifts to get us on that “sound footing” again.
READ: Mini budget worth a cheer
It is ironic though that he is taxing richer people more while at the same time relaxing exchange control substantially, so that they can take more money out of the country. Is the thinking that we don’t really need the rich?
Economists and business people might be happy with the budget, but we still need some stronger leadership. The usual vagueness one has become used to from the ANC government when it comes to plans and their execution crept into the budget. This was especially obvious around solving the problems (or rather challenges, not to mention crises) of state-owned enterprises like Eskom, South African Airways and e-tolls.
READ: Nene: SAA, Post Office on road to turnaround
It is easy to say that government guarantees for parastatal financing models will not have an effect on the budget deficit. But where will the money then come from if it is needed? From the selling of non-core assets? Which assets then, and how much can this bring in?
Nene has probably done well for a fairly new finance minister, although his speeches are not as colourful as in the days of Trevor Manuel. But then again, regarding spending growth he is far more conservative than Manuel (and even Pravin Gordhan) ever was.
We need really strong steps and leadership though. One just hopes in Nene’s case it is not as a friend of mine loves to say: “All too much for a mere male.”