Innovative incentives needed, not sticky tape

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IOL pic feb27 pravin gordhan budget speech 2014 Reuters Finance Minister Pravin Gordhan delivers his 2014 Budget speech in Parliament in Cape Town on February 26, 2014. South Africa cut this year's growth forecast to 2.7 percent, saying deep challenges persisted after a 2009 recession. Picture: Mike Hutchings

Pravin Gordhan, the Finance Minister, has delivered a Budget that speaks to three constituencies: the rating agencies, the electorate and business.

The ratings agencies will be happy once more that Gordhan, known for his steady hand over the years, proved again that South Africa remains firmly in a fiscal straightjacket.

News that despite slower economic growth, the 2013/14 budget deficit is projected to be 4 percent of gross domestic product – lower than the 4.2 percent projected in October last year – underscores Gordhan’s ability not to let populist urgings sway him from fiscal prudence.

After all, he has nothing to lose, if one takes into account that this might well have been his last Budget.

And with a little over two months to go before democratic South Africa’s fifth general election, the electorate should be happy to learn that they will see some R9.3 billion in tax relief. For good measure, Gordhan also threw in welcome increases for those receiving social grants.

Even so, with time, these increases will be eviscerated by the rising cost of living.

Business, meanwhile, ought to be happy after Gordhan reiterated the importance of the National Development Plan (NDP), which should provide some semblance of certainty if the government sticks to it.

Despite the 20-year action plan facing criticism from would-be spoilers in labour circles, Gordhan said it was a framework for “economic and social development”.

Granted, South Africa is a country in transition. It probably makes perfect sense that Gordhan decided on a “no drama” approach in presenting this year’s Budget.

The minister’s underlying message was one of stability and predictability. It is what investors wanted.

But far from the headlines is the fact that the Budget makes it clear South Africa is increasingly at a loss about how to bring about fundamental economic transformation that decisively tackles poverty, inequality and unemployment.

Judging by the absence of truly ground-breaking initiatives to foster more dynamism and resilience in the economy, one can almost be certain that the country will continue putting sticky tape on some of its core problems.

In effect, South Africa is boxing with one hand tied behind its back, and that is partly legacy and partly self-inflicted.

To use an aircraft analogy, South Africa is no different from an airplane taxiing on to the runway with all its doors open. It won’t take off.

Gordhan has most probably left it to his successor down the road to try to address the real inhibitors of growth, especially labour strife, poor education, apparent incompetence in the public sector and an intransigent business sector.

What he did not shy away from, though, was reiterating the need for more collective effort to grow the pie. One does not need to be a rocket scientist to see that South Africa has tough choices to make.

As a developing country, we ought to be investing rapidly in the capacity to create new avenues of economic prosperity – in energy, agriculture, human capital, and science and technology.

I was quite disappointed to see that Gordhan’s Budget put no strategic focus on innovation and technological advancement. By my own count, he mentioned the NDP 14 times and corruption only twice. There were 70 mentions of tax and no mention of innovation and technology.

If these references suggest anything about priorities, our focus is really in areas that will mean very little in terms of bringing about sustainably robust economic outcomes. If anything, we might just as well keep on playing hide and seek with the ratings agencies and, with time, we will also grow adept at giving the electorate a fleeting sense that we are a society that truly cares.

Fostering dependency is no way to care. Gordhan understands that a lot of South Africans just want to get on with their lives but our history is such that our past will often get in the way, robbing the country of the vitality needed to steer this society forward.

So, by and large, this Budget was part “non-event” and part “predictable”.

The outcome of this year’s election will show whether the finance minister in the new administration needs to reverse the order of the constituencies that Gordhan spoke to yesterday. South Africa is in need of “incentives” Budgets, not stick-and-carrot Budgets. Or else the government risks entrenching the view that the hand that giveth is also the hand that taketh.

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