Gordhan slams brakes on spending

Ethel Hazelhurst

A call for South Africa to “actively pursue a different trajectory” and a further commitment to control spending came from Finance Minister Pravin Gordhan yesterday.

Presenting his annual Budget he said real spending growth would average 2.3 percent over the next three years, compared with the 2.9 percent announced last October.

The Budget Review, a supporting document that provides detail on and analysis of the Budget, said growth in public sector wages would grow an annual average of 1.3 percent in real terms over the next three years – much slower than in previous years. And it noted that the public service multi-year wage settlement reached last year provided “greater certainty against unanticipated wage increases that have to be financed by the fiscus”.

While Gordhan did speak about a “tax policy review”, speculation about the introduction of a wealth tax, a windfall tax or an increase in company tax proved unfounded.

Gordhan said the National Development Plan (NDP) had served as the Budget’s point of departure. And the Budget Review described a process through which government departments and agencies would align their planning and expenditure to the NDP. The document said the NDP would “shape resource allocations” over the next two decades.

The 2013/14 Budget should go down well with credit rating agencies – provided they believe that the government will remain committed to its financial blueprint. Major rating agencies have cut South Africa’s sovereign rating over past months due to fears that the government would spend beyond its means.

Gordhan’s decision to reduce spending further came after an upward revision of the budget deficit for the 2012/13 fiscal year. Economic growth has been weaker than expected and therefore tax collections are expected to fall R16.3 billion below earlier projections.

The revenue shortfall boosted the deficit on the consolidated budget to 5.2 percent of gross domestic product (GDP) – up from the 4.8 percent estimated last October and the initial 4.6 percent in February last year.

A deficit of more than 3 percent of GDP, for a prolonged period, channels an increasing share of government resources into debt service costs. Of total spending of R1.1 trillion in 2013/14, debt service costs are set at R100bn. These are resources that could otherwise have been directed to economic and social infrastructure.

The projected budget deficits for the next two fiscal years were slightly above Gordhan’s estimates of last October. But he continued to predict a deficit of only 3.1 percent of GDP by 2015/16.

On spending, Gordhan said the government was committed to “remaining within the ceiling set out in the Budget” and noted that new policy initiatives would be financed from “savings, efficiency gains and reprioritisation”.

To achieve these goals there would be “a comprehensive review of both spending controls and value for money in government programmes and agencies”, the minister said.

The government would monitor growth in state employment, a “major contributor to the increasing wage bill over the past five years”.

Gordhan highlighted the “key role” of private sector companies in the economy and outlined capital projects in their pipelines, including a R28.5bn long-term infrastructure investment by a leading industrial company, which will create 10 000 temporary and 4 000 permanent jobs, and two telecoms investments worth R14bn this year.