Budget 2023
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Nene has enormous task to revive hope

Cape Town - Finance Minister Nhlanhla Nene has been in office just about a year and a half, in which time the mood on the South African economy worsened, one can almost say has become bitter.

This afternoon (Wednesday) at 14:00 when he starts delivering his mini budget or medium term budget policy statement (MTBPS) in Parliament the expectations will be there for him to lift this mood.

He will not be speaking against a rosy background. The international economy has disappointed so far this year. Europe has been on a slippery Greek slope with refugees from Africa and the Mideast pouring in. And in the far east the economies are facing a Chinese wall.

Locally real GDP growth slowed sharply to -1.3% in the second quarter of this year (seasonally adjusted and annualised). The weak growth was broad based, although most notable in the agricultural and mining sector. It can be attributed to electricity supply constraints, drought, soft demand and weak business and consumer confidence.

Apart from the usual disturbing culprits, the poor performing state entities, poor public services, the government’s wage bill and wasting of public money, students around the country are now also up in arms over increased study fees.

South Africans and the international rating agencies most likely, still want to know how he is going to fund the exorbitant nuclear energy plans, other infrastructure needs and shortages creeping up at every corner.

The intensity of the spotlight on Nene will therefore again increase this afternoon. And he does not have much fiscal room to make significant moves. Because of the poor economic growth, tax income will be under pressure, leading to possible widening of the budget deficit and more necessity to borrow money.

The current budget deficit, around 4% of GDP, would, according to last year’s budget, have been brought to below 3% by 2016. It seems as if that will become another pipe dream.

Debt burden

South Africa’s debt burden can also start spiralling again – debt servicing is already becoming one of the biggest expenditure items on the budget. All this is ammunition for the rating agencies whose next move may be to give SA junk investment and credit status.

The MTBPS is, however, not the real thing where the minister has to balance the books for the next year with tax-proposals and specific spending figures. That will happen at the main budget presentation in February next year.

The mini budget though is important for adjustments, financing specific contingencies that have come to the fore and showing the course to be taken for the next three years.

It is therefore ideal for indications of policy changes, new ways of thinking, giving hope or increasing despair. Will it be business as usual, the safe route, or will there be indication of real and drastic government austerity measures? Or will taxes, which have an impact on every South African, remain the ultimate mechanism to tackle shortages?

There won’t be general consensus on what Nene should do. Cosatu already urged Nene last year to "definitely ignore advice from ratings agencies... and the army of capitalist analysts, commentators and experts who are bombarding him with instructions to move in... the opposite direction to the ANC."

But most economists and people involved in the real “wealth creating" economy want him to prioritise policies to reassure business investors that their profits are secure and that they can continue with business as usual. And to put a stop to regulations and moves by other government departments that endanger business activities. An example is the new visa regulations that had such a negative effect on the tourism industry.

It might be advisable to give a real hard look at the small business sector and to help entrepreneurs as well.

Maybe it sounds a bit “pie in the sky” but the budget should help create a vision of nation building through wealth and employment building.


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