‘Invest in South Africa Inc or lose out’

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Finance Minister Pravin Gordhan delivers his Budget speech at Parliament.

South Africa is in it for the long haul - and the 2013/14 Budget has the right mix of incentives, prudence and social support to get everyone on board, according to Finance Minister Pravin Gordhan.

“We are involved in a long-term reconstruction and development of this country. That, with the legacy we have, doesn’t happen in 20 years. But each five years… we must make a qualitative difference. We must take a qualitative leap and there must be a qualitative improvement in state capacity, in what people experience and in the manner in which money is spent,” he told The Sunday Independent.

With the National Development Plan firmly on stage, efficiency, a capable state and competitiveness provided the subtext throughout, alongside the need for political office-bearers to live up to their constitutional responsibilities and their responsibility towards their constituents, backed up by the right people with the right skills.

After being in the spotlight before and after Wednesday’s Budget speech amid speculation over a supertax or wealth tax, percentage increases or cuts in specific areas, alongside other often very narrowly focused economic angles, Gordhan took a step back to talk about steering “South Africa Inc” from consumption to economic growth that is investment-driven and creates jobs.

The Budget comes amid continuing global economic turmoil which has hit South Africa’s exports hard, particularly from mining, rippling through the economy with job losses and lower tax revenues. It might be a difficult ship to steer, but Gordhan said previous years of surpluses and low borrowing meant there was room to manoeuvre in the current revenue squeeze.

The elements for investment-driven growth are in place: incentives – in the motoring and textile industries, in economic development zones and for youth employment – show the government’s willingness to share the costs of job creation with the private sector. Billions of rand for infrastructure delivery will not come from the national purse, but from the the state-owned enterprises’ own balance sheets.

While corporate South Africa is sitting on an estimated half a trillion rand – just under half the country’s consolidated R1.15 trillion Budget – the finance minister reiterated the government’s call on the private sector to come to the party, a quid pro quo of sorts. Business needed to find a “different calculation of risk” and “start believing in South Africa Inc and recognise we have a collective future”.

“If we don’t make an investment in this place at the right point in time, not only will we lose South Africa Inc, but businesses will lose out,” he said. “You need a new set of parameters from which risk is calculated and perceived. And those parameters must take into account that there is a phenomenal opportunity to reposition South Africa and all of its peoples, including business, to take the route to greater prosperity for all of our people.”

The mining sector, the backbone of the economy, remains unsettled in the wake of last year’s police killings of 34 Marikana miners and wildcat strikes for a R12 500 monthly wage. Union recognition negotiations are volatile and the planned retrenchment of 14 000 workers by Anglo American Platinum remains to be resolved in talks between the government and the company.

“The events in the mining sector have brought a new sense of reality to bear (on government, business and labour) and that reality is that we have to sit in the same space and take collective responsibility for this country. And with that responsibility comes specific roles for each of us,” said Gordhan.

“I think we might well have started creating, with the president’s initiatives, a context where sitting around the table and talking through problems is going to become, once again, the way we do business in South Africa.”

But global and domestic economic realities, to which the government had responded with “an interesting agility”, still meant that tax revenue fell by just over R16bn and jobs continued to be lost.

According to a National Treasury briefing to the parliamentary finance and appropriation committees on Thursday, last year’s strikes had cost R4.6bn by December and because of job losses in the higher-end income bracket, significantly less PAYE had been collected.

But Gordhan cautioned against the notion that 5 million South Africans supported the just over 16 million grant recipients. Around 80 percent of revenues come from personal income (36 percent), VAT on goods and services (26 percent), and corporate tax (18 percent).

“All of those taxes are contributions and everybody contributes,” Gordhan said.

“The impression that has been created is that there is a small middle class that supports this wide mass that is immersed in poverty. But that wide mass also has consumption power in its own right, lower than the middle classes but nonetheless.”

With a grant they had the capacity to spend and become an important part of the informal economy, he said.

According to the Budget Review, for 22 percent of South African households, grants such as old-age, child support and foster care are their main income. So grants, one part of the social wage, remain important, but so are the other aspects: no-fee schools, free minimum basic services and government-subsidised housing.

If Gordhan or the rest of cabinet had their way, everyone who could work, would. “While economic wages are important, in a high unemployment environment and high poverty environment the social wage is going to be a key stabilising factor, so directing resources towards a social wage in a prudent… way is a major advance.”

With public attention focused on wasteful and irregular expenditure, the government is tightening loopholes in its tender system through a chief procurement office in the Treasury and banning all public servants from doing business with the government. But Gordhan’s message this week was that at the end of every government tender is a business that overprices or underdelivers.

So, the Treasury is scrutinising 76 entities that benefited from government contracts and Sars is looking over another 1 000.

The message to MPs on Thursday was that there was no way companies that gained from contracts could not pay tax.

Gordhan acknowledged that while spending cuts across departments were the norm – they contributed R10.4bn to the fiscus – implementation of effective and efficient service delivery would be varying.

Some departments, such as home affairs, are doing well; structural weaknesses mean that municipalities don’t deliver, for example, water infrastructure and provinces don’t build the schools they’re meant to.

Action is under way: a pilot project with the Health Department has pooled three hospital infrastructure-related conditional grants to allow for shifting funds among them to aid delivery.

If a province can’t spend an allocation, the national department might just step in to deliver, for example, nursing colleges.

And as the Treasury’s suspension of transfer of funds to Nala Local Municipality in the Free State in January showed, there are consequences to bad financial management. Within a month, the council had passed the necessary resolutions to get its financial house in order and the suspension was lifted.

“There are provisions in the constitution which allow the Treasury to step in if resources are not spent properly or not accounted for properly. We are not going to hesitate to do that,” said Gordhan. - Sunday Independent