Budget black hole

Finance Minister Pravin Gordhan. Picture: David Ritchie

Finance Minister Pravin Gordhan. Picture: David Ritchie

Published Oct 23, 2016

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There has been so much political noise around Finance Minister Pravin Gordhan that the economic picture has taken a back seat.

As a result, when he steps up to deliver his “mini-budgetâ€ù on Wednesday, the nation could be in for a shock as he reveals the true state of the country’s finances.

Estimates of how far below his February projections tax collections may have dropped thanks to an under-performing economy range from R18 billion by some economists to a hair-raising R39bn from the Parliamentary Budget Office.

Whatever the hole, it will have to be added to a pile of demands on the fiscus that it is already straining to meet.

Gordhan will need no reminding that it was on the same occasion last year that the nascent #FeesMustFall movement stormed the parliamentary precinct and the top of the national agenda.

By the time his ill-fated predecessor, Nhlanhla Nene, had finished speaking and MPs dribbled out of the National Assembly, the political landscape had shifted and before long the Treasury was scrambling to find the money for a zero fee increase.

This year campuses are already on fire and the minister’s belated inclusion in a task team to tackle the crisis is no guarantee he will not be tossed another grenade to juggle in the form of additional funding requirements beyond the partial freeze on fee hikes already announced.

Meeting students’ demands for free education would cost R250bn over the medium term, according to the PBO.

But, far from stretching the fiscal envelope, Gordhan will be doing his utmost to keep to the targets set out in his February Budget, the real pain of which has yet to be fully felt.

In February, Gordhan not only lowered the medium-term expenditure ceiling by a further R25bn, with the bulk of the belt-tightening to take effect in the coming two years, and introduced tax increases totalling R18bn for the current financial year, but declared his intention to raise further tax revenue of R15bn in each of the following two years.

How this will be achieved has yet to be spelled out.

But trying to plug the expected larger budget deficit by hiking taxes or further reining in spending would add to the torment of an already stressed economic animal.

Borrowing more, on the other hand, would be to court an immediate ratings downgrade and, more importantly, raise the costs of servicing debt, which are already consuming an ever-increasing proportion of funds that could go to social spending and other pressing needs.

What the student protests have writ large is that tolerance for continued deprivation has run out as the belief that tomorrow will be better than today evaporates with confidence in the governing party’s capacity to make it so.

While the state has little room, if any, for further investment in the economy to lift growth, the private sector is sitting on R600bn in dormant capital which could provide the spark for a growing, more inclusive economy if invested in the right areas.

But many of the promises Gordhan felt he had the backing to make in February - in the hope of coaxing business out of its post-Nenegate stupor - have yet to materialise, including a more amicable and stable labour environment, reform of state-owned enterprises and clearing up of policy uncertainty.

Divisions in the governing ANC, which have only intensified since, have stymied these efforts.

Finance Minister Pravin Gordhan has the full backing of his colleagues, economists believe.

Political Bureau

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