Gordhan's answer to balance books

Cape Town – Tighter fiscal conditions, but a measured consolidation process, was the reliable Finance Minister Pravin Gordhan’s answer to balancing governments books without killing the goose that lays the golden eggs.

Gordhan said Government efforts to reduce borrowing and the budget deficit have been frustrated by consistent downward adjustments to growth and tax revenue. Therefore, to create the conditions for more rapid long-term growth, fiscal policy has been aimed at delivering a  measured consolidation that avoids a sharp contraction in expenditure, continues to prioritise capital investment and stabilises national debt as a share of gross domestic product (GDP). The key is balance, and to do things that inspire confidence in the economy, said Gordhan.

The consolidated budget deficit for 2016/17 is projected at 3.4% of GDP, marginally higher than the Budget 2016 estimate of 3.2%.

A combination of the declining GDP growth rate and lower tax buoyancy has reduced the in-year tax estimate by R23bn. The shortfall is offset by draw-downs on the contingency reserve, declared savings and projected underspending. As a result, the shortfall declines to about R11.5bn, limiting its impact on the budget balance.

Without policy adjustments, gross tax revenue is projected to fall short of February estimates by R36bn in 2017/18 and R52bn in 2018/19.

The mini budget proposes R26bn in reductions to the expenditure ceiling over the next two years. Proposed tax measures amount to R13bn in 2017/18. Combined with higher taxes signalled in Budget 2016, total revenue increases amount to R43bn over the next two years.

These adjustments result in net national debt stabilising at 47.9% of GDP in 2019/20.

Gordhan stressed at a press conference before his speech that fiscal factors happen in a context: “There are concerning patterns, both economically and in the political environment, but I am not spreading doom. We are not in a hopeless position."

“Yes, there are risks and we are transparent about them. But there are also encouraging patterns in the economy. In a period with lower growth and tax income we have to make new choices and not kill off the green shoots of growth left,” said Gordhan.

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