Cape Town - Finance Minister Pravin Gordhan faces a massive shortfall in tax revenues as he presents the mid-term budget Tuesday, likely to double the estimated fiscal deficit.
It will be Gordhan's first budget since he took over from the
popular and charismatic Trevor Manuel who held the post for 13
years, but the mid-term version of the annual budget is not the
place for policy changes.
"The big issue of course will be on the revenue side," said
economist Dawie Roodt of the Efficient Group.
"Revenues are currently under severe pressure because of the
economic slowdown and I won't be surprised if we see about R70,
maybe R80 or R90bn under budgeted estimates."
South Africa's economic outlook has worsened considerably since
the February budget when growth for the year was expected to be 1.2%.
"The biggest challenge is the fact that the economy is not
growing fast enough for government to generate the tax revenues to finance development," said Tony Twine, an economist with
Econometrix.
Ahead of South Africa's elections in April, which returned the
ruling party to government, Manuel poured billions into public
infrastructure investment and social spending to boost long-term
growth.
But, eight months later, the recession has been worse than
imagined with the economy estimated to contract at 2% in
2009, and a budget deficit pinned at 3.9% likely to balloon nearer to seven percent.
Jac Laubscher, Sanlam group economist, says this is probably the
most important mid-term budget to date, as it questions the
sustainability of South Africa's prudent fiscal policy for the
first time.
"... The challenge over the next few years will be quite
different, namely to curb spending until the economy, and therefore tax collection, has recovered sufficiently."
The international Monetary Fund forecasts growth of 3.3%
over the next three years.
Roodt said low state debt in recent years meant "we can afford
to run quite a large fiscal deficit for quite some time" but there won't always be room to do this.
The billions of rand in tax relief for individuals Manuel has
given over the years is likely to grind to a halt in the next few years and possibly reverse as the economy recovers.
The mid-term budget comes amid mounting pressure on the new
government, with violent service delivery protests on the rise, a widening poverty gap and 724 000 jobs lost since last year.
The beleaguered power giant Eskom is angling for a 45%
annual tariff increase, after two increases totalling 59%
since last year, as it struggles to finance two new power stations to meet increasing energy demands.
While the powerful left pushes for a greater role for the state
in the economy, Laubscher warns they will have to think again.
"In fact, the squeeze in which the government finances is going
to find itself necessitates a greater role for the private sector, inter alia in the development of infrastructure through
public-private partnerships."
He says new initiatives such as a contentious proposed national
health service and national social security system are risky in the current vulnerable economy.
"Caution will have to be the operative word and risky
initiatives, the outcome of which cannot be predicted with
reasonable certainty, should be avoided."
- Sapa