SA’s Bud­get: Bridg­ing an ever-widen­ing gap

Finweek English Edition - - IN THE NEWS - BY MAR­CIA KLEIN

With ab­so­lutely no room t o ma­noeu­vre a ny more, fi­nance min­is­ter Nh­lanhla Nene is f illing what he calls a “struc­tural gap” be­tween gov­ern­ment’s ever-grow­ing rev­enue re­quire­ments and in­creas­ingly un­achiev­able pro­jected tax pro­ceeds by hik­ing taxes on a num­ber of lev­els.

Th­ese in­clude a one per­cent­age point in­crease in per­sonal tax, an 80.5c a litre in­crease in fuel taxes, higher trans­fer du­ties and the pos­si­bil­ity of in­creased elec­tric­ity “levies”. Tax hikes will bring in an ad­di­tional R16.8bn rev­enue in 2015/16 to a na­tional bud­get that is strained at al­most ev­ery level (see graphs on page 12).

Nene t a l k e d a b out a bud­get con­strained by the need to con­sol­i­date public fi­nances “in the con­text of slower growth and ris­ing debt”.

His big­gest prob­lem is tax rev­enue, which was just R979bn, or R14.7bn less than the bud­get es­ti­mate a year ago – a symp­tom of the slow­ing econ­omy.

Nene said that tax from busi­nesses ref lects the “slow­down in busi­ness con­di­tions”, while per­sonal in­come tax “re­mains a buoy­ant source of rev­enue” – hence his in­ten­tion to in­crease it.

The main tax changes are: To ap­pease unions and South Africans with low in­comes, there has been no in­crease in VAT.

Gov­ern­ment ex­pects slow eco­nomic growth in the medium term – from 2% in 2015 to 3% in 2017/18, largely due to the power cri­sis, or “elec­tric­ity chal­lenge” i n Nene’s words. Nene con­cedes t hat t his i s well be­low growth ex­pec­ta­tions for emerg­ing and de­vel­oped economies.

“It is now clear that we can no longer post­pone con­sid­er­a­tion of ad­di­tional rev­enue mea­sures,” he said.

Gov­ern­ment will spend R25bn less over the next t wo years, re­vise its spend­ing plans and “con­sol­i­date” gov­ern­ment jobs, but there is very lit­tle change in gov­ern­ment’s plans to cut ex­pen­di­ture from those men­tioned in pre­vi­ous years, apart from the ad­di­tion of a con­tin­gency re­serve of R5bn next year, ris­ing to R45bn in 2017/18 to al­low for new spend­ing pri­or­i­ties that may come up.

Like Pravin Gord­han be­fore him, Nene has promised that gov­ern­ment will rein in on ex­pen­di­ture, cut­ting spend­ing on cater­ing, en­ter­tain­ment and venues by 8% and travel and sub­sis­tence by 4%. Yet there is no ev­i­dence that there has been any pos­i­tive change since the last time this was promised by Gord­han.

Ac­cord­ing to the Bud­get Re­view, na­tional and pro­vin­cial ex­pen­di­ture has grown ex­po­nen­tially. Most public sec­tor work­ers were in the top 30% of wage earn­ers yet their de­mands are high. One ex­am­ple of how out of con­trol per­son­nel spend­ing is, was a f ig­ure in the Bud­get Re­view show­ing that be­tween 2007/08 and 2010/11, lo­cal gov­ern­ment per­son­nel spend­ing in­creased by a stag­ger­ing 60%.

A def i c i t of 3.9 % of GDP

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