MINI BUDGET AS IT HAPPENED: Our long walk is not yet over, says Pravin Gordhan

HERE IS YOUR BUDGET RECAP:

It was always going to be a tough act to deliver a medium-term budget policy statement that would instil confidence in South Africa’s ability to attract investment and stave off a credit ratings downgrade.  

But Finance Minister Pravin Gordhan, who has been back at the helm of National Treasury since December last year, delivered a prudent and even presidential-sounding mini budget speech in Parliament on Wednesday.  

The message was clear: “Survive the next two years, tighten what needs to be tightened. Do whatever needs to be done and work like hell to build consensus. Get the noise out of the system and create political stability that everyone requires.” 

In the next three years, South Africa will increase taxes and limit spending as it will miss the budget deficit, growth and debt targets it had set earlier.  

Whether the ratings agencies will buy into Gordhan’s belt-tightening and frugal measures remain to be seen. Analysts and economists have mixed views.

Some believe the mini budget speech has bought South Africa another six months of a ratings downgrade reprieve, while others say the budget commitments will probably not be enough to hold off a downgrade.

This year’s mini budget was one of the most anticipated since the annual statement was launched almost 20 years ago, according to analysis from KPMG.

The impact of slower growth on tax revenues is substantial, but fortunately Treasury has managed to keep spending under control, says Johann Els, economist at Old Mutual Investment Group.

"Although this continues the task of fiscal consolidation, the goalposts have again been shifted." He said the jury is out whether this MTBPS will be enough to avert a ratings downgrade in December.

"The question of whether they did enough will be a close call. They are certainly trying hard, but we have seen no further improvement in other issues such as SOEs with no further announcements to strengthen governance, plus Treasury seems to have caved on the nuclear issues, stating that it will work with the Department of Energy and Eskom, with Eskom to lead nuclear. This will raise debt guarantees for Eskom even further in future years," said Els. 

Els is of the view that the mini budget address was relatively solid given the pressures facing Treasury.

"A tighter stance might have been too damaging to the economy. It remains to be seen how this will influence the country’s ratings. Ratings agencies do not only look at the budget, but also economic growth. S&P are also waiting for announcements regarding a national minimum wage and a secret strike ballot."

This infograph looks at how the state spends its money. Post-school education and training takes the lions share.

MUST SEE: 10 crucial figures from the mini budget

Gordhan, Cabinet colleagues treading water

Tax increases and austerity should be short term interventions, but are becoming the mainstay of budget and related speeches because of the government’s failure to announce much needed structural reforms, commented Frans Cronje of the SA Institute of Race Relations (IRR).  

"Our sense is that the minister of finance and his Cabinet colleagues are treading water – which is just not good enough for an economy in peril. A less generous interpretation is that they are fiddling in the face of a deepening economic crisis," said Cronje.  

"Tax increases risk deterring economic activity and raising the costs of doing business while austerity measures will undermine infrastructure investment and consumer spending - where such austerity sees cuts in the civil service wage bill."  

In the absence of structural reforms it seems to Cronje quite unlikely that the growth forecast for 2017 will be reached, which means that revenue, debt and deficit numbers are in all likelihood too optimistic – which in turn reintroduces the spectre of rating downgrades.

Commerce chamber worried about revised growth target

The South African Chamber of Commerce and industry (Sacci) noted with concern the revised growth target of 0.5% for the fiscal year of 2016.  

"The 0.7% growth predicted for the 2017 fiscal year is encouraging, although still significantly low given the economic, political and social challenges that we face," it commented.  

"We wish to encourage the minister to continue with the austerity measures to bring inline the non-investment related expenditure, including wasteful government spending.

"We, however, caution the minister from adopting austerity measures which may appear good on the face of it, yet have a negative impact on the SMME sector which relies mainly on supplying goods and services to government departments and related entities.

"This could have a devastating effect on job creation and can cause job losses especially amongst the low skilled workforce."

Agbiz lauds Gordhan and his team for a 'hopeful and resilient' mini budget

“Minister Gordhan and his team have in general terms analysed the environment well and provided a credible MTBPS, given the enormous and complex challenges we face as a country. The minister emphasised the need for inclusive growth many times, with which Agbiz fully concurs, as well as the need to work together to achieve our goals as a country.

"To this end Agbiz is involved in a number of initiatives with government and National Treasury in particular in order to achieve the goals of the National Development Plan through sound and sensible implementation,” said Dr John Purchase, CEO of Agbiz.  

While Agbiz lauds Gordhan and his team for a "hopeful and resilient" mini budget - in his words - the questions remain as to his political future, given the spurious charges of fraud brought by the NPA, and whether he has done enough to stave off downgrades by the rating agencies.

These remain the critical factors and questions, and these could easily scupper the best laid plans and intentions. Hopefully sanity will prevail, said Purchase.

Gordhan stays on path of fiscal consolidation

Finance Minister Pravin Gordhan's mini budget is a continuation on the path of fiscal consolidation, while being cognisant to avoid measures that would inhibit investment in the current low growth environment, according to Novare’s economic strategist Tumisho Grater.  

"Slower gross domestic product (GDP) growth has a direct implication on revenue collection and debt sustainability. This statement was echoed by Minister Gordhan in the February budget this year.

"The impact of the country’s anaemic growth was reflected in the new revenue projection for the current year, which is R23bn less than what was estimated in February," said Grater.  

"The country’s economic growth was also revised lower for the 2016 calendar year to 0.5% from the February estimate of 0.9%. Expectations are that appropriate policies will result in a rapid recovery in growth, which is projected to climb to 1.7% next year."  

From a credit rating agency perspective, the uncommon feature of the inclusion of the fiscal risk statement in the budget may be further scrutinised to ascertain the robustness of how the country plans to manage its risks and liabilities, in Grater's view.  

The section highlights key concerns such as the ripple effect of low growth and plans of managing expenditure pressures. Guiding principles for the oversight of state-owned companies, which includes a framework to inform the board appointment process was also mentioned.

Coega Development Corporation cheers Gordhan's mini budget

The Coega Development Corporation (CDC) has welcomed Finance Minister Pravin Gordhan's mini budget, said Dr Ayanda Vilakazi, CDC head of marketing and communications.  

Gordhan mentioned the role the Coega Industrial Development Zone (IDZ) is playing in the energy mix through the allocation of 1000 MW as part of the gas-to-power programme.  

Vilakazi said the CDC is proud to be among those state-owned entities (SOEs) "who seamlessly continue contributing positively towards foreign direct investment (FDI) through our latest investor acquisition".  

"As mentioned by the minister, inclusive growth requires concerted effort to improve the investment environment, particularly for export-oriented and more employment-intensive manufacturing. The CDC in earnest continues on this trend," said Vilakazi.

INFOGRAPHIC: Mini budget breakdown

Have a look at this infographic illustrating how the mini budget that was delivered by Finance Minister Pravin Godhan is spent.

For all the protest action follow News24's rolling updates.

Lew Geffen, chair of Lew Geffen Sotheby’s International Realty: South Africa needs to see a drastic streamlining of the very bloated public sector and sharp cuts in superfluous government spending before a greater burden is passed onto what is actually a very small tax-paying base compared to the overall population of the country. A medium-term economic turnaround isn’t possible until that happens.

Lew Geffen, chair of Lew Geffen Sotheby’s International Realty: We cannot create investor confidence without, among other things, energy security, and cash-strapped South Africans can ill afford the greater tax burden they’ll be facing next year. It certainly does not bode well for growth in the national property sector, which is currently being shored up by the Western Cape. If that market slows, driven by further shrinkage of consumer spending, property inflation will start to move into negative territory in the medium term.

Lew Geffen, chair of Lew Geffen Sotheby’s International Realty: It’s unfortunate that the finance minister’s post doesn’t come with conjuring powers, because working as he is with one hand tied behind his back, it would have taken a magic wand for Gordhan to have been able to present anything other than a dismal economic outlook in his mini budget speech.

Lew Geffen, chair of Lew Geffen Sotheby’s International Realty: Gordhan has been handed the proverbial sow’s ear by government and told to turn it into a publicly palatable silk purse.

Inside the National Assembly where Finance Minister Pravin Gordhan delivered his mini budget speech while chaos ensued outside. He went outside to speak to protesters following his speech.

Pic: Erin Bates

Finance Minister Pravin Gordhan comes out to meet students. Crosses over police tape to address them.

Pic: Jenna Etheridge

Students outside parliament (Picture: Matthew Le Cordeur)

DA leader Mmusi Maimane on eNCA: I think the mini budget was sound.

Neil Roets of Debt Rescue: Consumers have to tighten their belts for a while longer and ensure they are cautious in spending. A personal budget is the most effective way of knowing where money is spent. And what a perfect time to do so, having just heard the interim budget. In the words of Finance Minister Pravin Gordhan: “It is tabled at a time of global uncertainty, but of hope, of caution, but of opportunity. It is up to us”.

Neil Roets of Debt Rescue: Further increase in social grants are welcomed. But cost of living remains very high. Consumers have to ensure they budget and live according to it strictly.

Neil Roets of Debt Rescue: Finance Minister Pravin Gordhan confirms 2016 has had an unusually difficult economic atmosphere so far. Many business and households are struggling to make ends meet. This is clear in the number of over-indebted consumers seeking help in the form of debt counselling.

Stay with us for reactions to Gordhan's speech.

Meanwhile, police have fired stun grenades to disperse protesters outside Parliament, setting off a stampede, reports New24.

A mock coffin was set alight and thrown from the protesters' side over the heads of police officers.Police rushed to extinguish it before firing at least 10 stun grenades.

Protesting students had just finished singing the national anthem when the stun grenades were fired.This set off a stampede. People screamed and scattered and stones were flung. Police used a water cannon at the Plein Street entrance to Parliament.

RECAP: Budget in a nutshell

South Africa is in a difficult economic transitional phase and consolidation and balance will be the key words regarding government finances over the next three years.

That was the core message Finance Minister Pravin Gordhan had for South Africans when he tabled his medium-term budget policy statement in Parliament.

Gordhan: With reference to Nelson Mandela: Our long walk is not yet over.

Gordhan: Quoting Oliver Tambo: A vision of SA where black and white work together as equals in prosperity – Let me say again: lions that fail to work as a team will struggle to bring down even a limping buffalo.

Gordhan: The mini budget, I hope, is a progressive one.

Gordhan: We can seize a time of hope if we choose to do so.

Gordhan: There has been change since 1994, including rising living standards. We signal a renewed commitment.

Gordhan: Global trends and our national realities must be recognised in a transparent way.

Gordhan: Those in public positions must direct their efforts to the shared interests of all South Africans. All South Africans are allowed to demand integrity from all who serve them – that includes all of us.

Gordhan: Our religious institutions’ moral guidance is also a cornerstone in the fight against corruption.

Gordhan: I want to thank all who joined our discourse locally and internationally to try and meet the challenges we face.