Budget 2016 investment delays could knock growth

2016-02-19 21:00 - Carin Smith
Sanisha Packirisamy of MMI Investments (Supplied) ~ Supplied

Cape Town - Regarding what could be expected in Budget 2016, two economists at MMI say they remain wary of government potentially postponing investment decisions to the detriment of long-term growth prospects.

This would be despite announcing an expansion in private sector participation through partnering with state-owned enterprises (SOEs) to deliver economic and social infrastructure, according to Sanisha Packirisamy and Herman van Papendorp of MMI.

"Arguably, the extent of the drought had not been adequately addressed by the State of the Nation address (SONA). With government failing to declare the current drought a national disaster, relief to farmers could be restricted, threatening a further rise in food prices," cautioned Packirisamy.

"The contingency reserve has been wiped out for the financial year 2015/2016 and whittled down to R2.5bn in the financial year 2016/2017, limiting the funds available to struggling farmers who require up to an estimated R12.5bn in necessary subsidies for key inputs and interest costs."

Packirisamy and Van Papendorp also expect little new detail on what they call government’s ambitious fourteen-year National Health Insurance (NHI) project, following a white paper in December 2015 that merely outlined four potential funding sources.

These include direct taxation (taxes on income and wealth), indirect taxation (VAT or special levies), payroll taxation and premiums (membership contributions). The white paper predicts that the baseline public health budget would ramp up from R134bn in the financial year 2015/2016 to R256bn by the financial year 2025/2026 (based on 2010 prices). This would equate to growth of 6.7% per year in real terms.

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The Department of Health suggests that this will take the level of public health spending from 4.1% of gross domestic product (GDP) currently - accounting for 84% of the population - to 6.2% of GDP by the financial year 2025/2026. Van Papendorp pointed out, however, that these projections are based off a trend growth rate closer to 3.5%.

Other issues raised by Van Papendorp and Packirisamy ahead of Budget 2016, include the over 14 700 service delivery protests registered in 2014/2015. In their view, the South African government has recognised that there is a need to boost the quality of public services and to reform remuneration in the public sector.

"Civil servants’ salaries and benefits consumed close to 40% of government’s non-interest expenditure bill in the financial year 2014/2015, effectively crowding out capital and more critical expenditure," explained Packirisamy.

Another key additional expenditure item she mentioned is the costs associated with a zero fee increase for university tuition sparked by the #FeesMustFall campaign. Student protests emerged on the back of steep tertiary institutional fee increases which escalated 4% to 5% above the rate of inflation between 2009 and 2015.

Government confirmed that the R2.3bn needed to resolve the shortfall in operational funding for universities - as a result of the agreement on a 0% fee hike in 2016 - will come from the existing budgetary allocation awarded to the Department of Higher Education and Training.

The Minister in the Presidency for Planning, Monitoring and Evaluation announced that government has reprioritized R2.5bn in state funding to be allocated to the National Student Financial Aid Scheme (NSFAS) in the financial year 2016/2017 to provide loans to qualifying students who were either partially funded or not funded at all over the past three academic years, while a further R2bn will be allocated to NSFAS in the financial year 2016/2017 to support unfunded or underfunded students still in the university system in 2016 to complete their qualifications.

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