Budgetary whoppers
FANCIFUL: GDP OVER-STATED IN A DECADE
Is Mboweni trying to break the tradition of ministerial delusion?
There is a fine tradition of finance ministers telling whoppers in their budget speeches. Granted, it’s never easy to make accurate predictions on anything fiscal, but the track record of our ministers in calling GDP growth rates is abysmal. They’ve over-stated GDP in eight out of the last 10 years, sometimes by inexcusably large margins.
This is not a slight matter. The country’s tax receipts and borrowing requirements are tied to the accuracy of economic forecasts. Every time Treasury over-estimates economic growth, the shortfall has to be made up in borrowings.
Virtually every year in the last decade, tax receipts were lower than expected.
Mboweni doused growth expectations for the current year, reducing the GDP forecast to a miserable 0.5% from the 1.5% forecast made in his budget speech in February. The budget deficit is expected to reach 5.9% of GDP in the current year. He expects growth to reach 1.7% by 2022.
Perhaps there is some truth in the claim that Mboweni’s sobering assessment of our current economic malaise is intended to shock his ANC colleagues into more radical reform.
If so, this kind of truth-telling would be a welcome change of form. Revisiting some of the fanciful predictions made by finance ministers over the last decade is sobering.
In his 2017 budget speech, then finance minister Pravin Gordhan declared: “Government debt will stabilise at about 48% of GDP over the next three years. The budget deficit for 2017/18 will be 3.1% of GDP.”
The actual figure for government debt in 2017 was 53% and the actual budget deficit for 2018 was 4.4%.
In his 2016 budget speech, Gordhan said the budget deficit would be reduced to 2.4% by 2018/19. It came in at 4.4% in 2018.
In 2014, the budget deficit was projected to be 4%, but came in at 4.3%. In the same year GDP growth was projected at 2.7%, rising to 3.5% by 2016. The actual figures were 1.5% and 0.5%. It’s clear the longer the time horizons, the more divorced from reality are the projections.
In 2013 the budget deficit was expected to fall from 5.2% of GDP to 3.1% in 2015/16. The deficit came in at 4.1% in 2015 and 3.8% in 2016.
In 2012 the budget deficit was projected at 4.6% of GDP (not bad, it came in at 4.4%), with a plan to reduce it to 3% in 2014/15 (way off the mark, it came in at 4.1%). That same year public debt was expected to stabilise at about 38% of GDP (this was way out: public debt to GDP was nearly 50% in 2015).
Back in 2011 Gordhan bemoaned the youth unemployment rate of 42% (for people between 18 and 29). Youth unemployment (ages 15 to 24) is today sitting at 55%.
Growth expectations for 2010 were 2.3%, rising to 3.6% by 2012. Growth exceeded Gordhan’s 2010 forecast, but he was way off the mark with his 2012 forecast of 3.6% (the actual growth for 2012 was 2.5%).
The cumulative effect of these over-estimates is a rising debt burden which Mboweni believes will exceed 70% of GDP by 2022/3. “This is a serious position to be in,” said Mboweni. In fact, debt to GDP could hit 80% in the next 10 years.