Outlook for economy not bright

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IOL Bus SS_Pravin Gordhan0 (32111095) Feb23 2013

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Finance Minister Pravin Gordhan will on Wednesday present his Budget. It is expected that sin taxes will increase and that lower-income earners may get reprieve. Picture: Ian Landsberg.

When Finance Minister Pravin Gordhan delivers his Budget speech on Wednesday, he must walk a tightrope to reach out to hard-pressed consumers amid anticipated low economic growth, caused in part by a dull outlook for many of South Africa’s key trading partners.

Gordhan’s speech, setting out government spending priorities for the year, comes in the wake of violent labour protests in the platinum belt – the commission of inquiry into the Marikana police killings of 34 miners in August last year, and the death of 10 others in the preceding week, is still sitting – which cast a shadow far beyond South Africa’s industrial relations regime.

The mining sector remains far from settled.

With talks between the government and Anglo American Platinum regarding the company’s planned retrenchment of 14 000 yet to reach finality, there remains uncertainty over one of South Africa’s key income earners.

This follows a tough period last year, when the price of minerals, including platinum, dropped.

Low prices coupled with rising costs meant many operations were unsustainable; for South Africa it meant a cut in export earnings.

Also of concern to consumers and corporate South Africa was Eskom’s proposed 16 percent annual hike in each of the next five years, coming on the back of an average 25 percent annual increase since 2008.

Arguing that the hike was necessary to maintain the power grid, Eskom was whipped by criticism in public hearings held by the National Energy Regulator of South Africa (Nersa).

The anticipated 80c a litre petrol hike looming next month – hot on the heels of February’s 41c increase which pushed prices to R12.27 inland and R11.92 at the coast – further darkens economic prospects.

It is a given that Wednesday will herald an increase in sin taxes, levies on alcohol and tobacco, as occurs every year.

This may be tempered by announcements on tax rebates, which traditionally target low-income earners.

But Gordhan must find money somewhere to pay for an ambitious infrastructure delivery programme – key to the government’s job creation plans – and for establishing the fund for the National Health Insurance, the universal health cover that will be rolled out over the next few years.

Funding the youth employment incentives due to be signed off in the National Economic Development and Labour Council is another priority, given that almost three in four South Africans aged between 15 and 34 are without jobs.

It is one thing to get more money, it is another to spend it.

And if current government talk is acted upon, there will simply be no more money for the asking for mayors, premiers, MECs or cabinet ministers.

If a hint by Planning Minister Trevor Manuel is anything to go by, then Gordhan may elaborate on key actions to tighten state spending-patterns.

This could include steps to ensure the government settles its bills within 30 days, particularly with small businesses and entrepreneurs, and reforms to tighten up the government’s procurement procedures and its supply chain management.

Long-criticised for opening the doors to what trade union federation Cosatu and others call tenderpreneurs, government procurement has been slated for allowing those with political connections to enrich themselves at the expense of service delivery.

The government was embarrassed that consultants cost it R102 billion for work which, according to the deputy auditor-general, departments could largely have done themselves, or that was simply not delivered. Last year’s report by the auditor-general on the financial health of provinces and municipalities, including Joburg, Cape Town and eThekwini, found failing fortunes all round. Just 43 percent of national departments and 18 percent of municipalities received clean audits.

Service delivery protests, which increased to unprecedented levels last year, often stem from frustration that promised houses, roads or basic services have not materialised and public representatives have not updated communities.

President Jacob Zuma in his State of the Nation address announced a review of the salaries and working conditions of all public servants, starting with teachers, linked to skills audits and an assessment of the value of the work being done. The possibility of a hike in wages may lead to conservative economists pointing fingers at the burgeoning public wage bill.

However, Economic Development Minister Ebrahim Patel, in this week’s debate on the president’s speech, pointed out that chief executives of large listed companies in the mining, finance and services sectors earned between R6 million and R9m a year – or 135 times more than their workers and 250 times more than farm workers, whose R105 daily wage kicks in from March 1.

“We point to these vast disparities not to score points, but to recognise that they limit our country and our people from developing the social cohesion that successful economies need and benefit from,” Patel said.

This is important. The Zuma administration has repeatedly called for a social compact with business – and labour and civil society – to address the country’s challenges.

Big business clinched a meeting with Zuma on the eve of the opening of Parliament to discuss the domestic economy and corporate South Africa’s contribution to the fight against poverty, inequality and unemployment, with another meeting expected within the next two months.

However, from the business community, tycoon Patrice Motsepe and his wife Precious stand alone in action: earlier this month they pledged to donate what could be billions of rand in future earnings, to the Motsepe Foundation for education, health and other projects.

This undertaking reportedly is part of the The Giving Pledge, a call on the world’s rich to donate half of their wealth, started by philanthropist business magnate Warren Buffett and Microsoft founder Bill Gates.

The review of the country’s tax regime, including mining taxes, may well lead to the state knocking harder at the doors of the very rich. - Saturday Star


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