Battling an economic earthquake

2014-02-26 18:18 - Sapa

Cape Town - Finance Minister Pravin Gordhan played it safe with a pre-election budget of R1.25 trillion on Wednesday, giving the poor increases in social grants and mainly middle class households R9.3bn in tax relief.

Despite lacklustre growth, Gordhan brought good news in announcing the deficit was expected to come in at four percent in 2013/14 - lower than forecast - and hold steady in 2014/15, then dip below three percent by 2016/17.

And he defended President Jacob Zuma's administration's record by pointing out that it had to weather "a once-in-70-year economic earthquake" when it took office five years ago but said it had steered the country from recession to recovery.

He urged South Africans to work together to radically change the economy.

"The new economic order we seek cannot just be a pact among elites, a coalition among stakeholders with vested interests. Nor can it be built on populist slogans or unrealistic promises.

"We have to work together to radically change our economy. This means working with our major businesses so that they sparkle across the globe."

It meant working with black entrepreneurs to grow their companies across South Africa, and beyond, working with small and large businesses to build value-chain linkages that supported dynamic, export-oriented, competitive enterprises.

"It means bringing those who are marginalised into the mainstream of opportunity and activity. It means a better standard of living for all.

"It is time for a bold vision of our future, as set out in the National Development Plan (NDP). It is time for action and implementation. It is time to move South Africa forward to the next stage of our historic journey to more rapid growth, jobs and development - time to leave behind poverty, joblessness and inequality."

Gordhan said his budget was based on the NDP and the next administration would have a solid platform for implementing it.

"The NDP reflects the priorities underpinning this budget, and prepares the ground for the next phase of our economic and social transformation."

Government's commitment to the NDP meant striving for 5% growth, reducing poverty, speeding up infrastructure investment, phasing in the National Health Insurance and professionalising the public service.

The long-awaited white paper on the NHI and Treasury's financing paper for the programme would be tabled "shortly", and should become public before the May 7 elections, he said.

He warned, however, that implementing the plan would require financial discipline, better productivity and a firm commitment to curbing waste.

Gordhan said that while the global economic outlook remained unsteady, South Africa's economy had continued to grow, but more slowly than projected a year ago.

"We expect growth of 2.7% this year. A weaker exchange rate is a risk to the inflation outlook, but it supports exporters."

Among other things, the budget allocated R6.5bn over three years to support small and medium enterprises.

The turnover tax regime would be amended to further reduce the tax burden on micro-enterprises.

Consideration was being given to replacing the graduated tax structure for small business corporations with a refundable tax compliance credit.

Gordhan said progress was being made in overcoming infrastructure backlogs and investing for more inclusive growth and development.

Public infrastructure investment would amount to R847bn over the next three years.

Spending on social infrastructure, which included health, education and community facilities, would increase from R30bn in 2012/13 to R43bn in 2016/17. Priority would be given to programmes to eradicate school infrastructure backlogs and to refurbish clinics and hospitals.

In 2014/15, a total of R40bn in infrastructure grants would be transferred to local governments for their water, sanitation, energy and environmental functions.

Consumer price inflation (CPI) was expected to come in at 5.7% for 2013, 6.2% this year, 5.9% next year, and 5.5% in 2016.

Gordhan said the number of people eligible for social grants was due to reach 16.5 million by 2016/17.

The old age and disability grants would increase in April, from R1 270 a month to R1 350; the foster care grant would increase from R800 to R830; and, the child support grant would increase, from R300 to R310 a month in April, and to R320 in October.

Increases in excise duties on alcoholic beverages and tobacco would add nine cents to the price of a 340ml can of beer and 68 cents to a packet of 20 cigarettes. Whisky would cost R4.80 a bottle more. These increases took effect immediately.

The general fuel levy would increase by 12 cents a litre on April 2, and the Road Accident Fund levy would increase by eight cents a litre.

Consolidated revenue for 2014/15 was expected to be R1.1trn and spending R1.25trn.

"We have achieved much over the past five years, in a very difficult post-recession climate. But there is more to do ahead, more to build, more to put right, more to learn, more to implement. We can only do this together," Gordhan said.

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