Facing up to fiscal constraints

2013-02-25 11:12
Finance Minister Pravin Gordhan
Finance Minister Pravin Gordhan. (Picture: AFP) ~ AFP
Cape Town - While hopes of economic stability are pinned on the upcoming National Budget speech, it will take time for the government to turn the fiscal corner, according to Sanlam Group economist Jac Laubscher.

"The government has painted itself into a fiscal corner in the past four years from which it will take time to escape," he said in his pre-Budget commentary.

Finance Minister Pravin Gordhan will deliver his 2013 Budget speech on Wednesday.

"The reality is that the leeway that was available four years ago has been absorbed by a sharp increase in government consumption expenditure that cannot by any stretch of the imagination be described as growth and employment enhancing."

Gordhan is expected to make light of the government’s plans for an increased role in the economy; and the implementation of the National Development Plan.

However, according to Laubscher, the government is confronted with a lack of fiscal space to accommodate new policy initiatives.

Laubscher wants fewer promises from Gordhan and rather an indication of progress already made. "National budgets tend to overflow with good intentions – instead of adding more, actual delivery on past promises should be the focus," he said.

He further noted that government was not addressing poverty and inequality in a sustainable manner, despite some short-term relief through the extension of social grants.

"The Minister of Finance has already indicated in previous budget speeches that increased taxes could be on the way if the fiscal consolidation programme does not proceed as desired.

"However, the current state of the economy and the need to accelerate growth do not lend themselves to an increased tax burden," said Laubscher.

Laubscher was also sceptical about President Jacob Zuma's announcement in his State of the Nation address that the Finance Minister will commission a study of tax policies to ensure an appropriate revenue base to support public spending. He added that it "does not sound promising".

"The Minister should provide more details on the planned tax study in the budget and hopefully this will not only focus on raising more revenue for the state, but also on the correct structure and level of taxes to promote economic growth and employment," Laubscher suggested.

Critical of government's fiscal plans, Laubscher said "it appears as if the government is well aware of the lack of fiscal space and the poor implementation capacity within the public sector".

He also said that the government was essentially shifting responsibility to the public sector.

It appears that government "intends to escape from the fiscal constraints it faces by increasing taxes and getting the private sector to assume responsibility for what is essentially public sector tasks" he said.

* Visit our 2013 Budget section for full coverage of Finance Minister Pravin Gordhan's National Budget speech.


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