Cape Town - Finance Minister Pravin Gordhan's Budget speech this week will feature much spending but little economic growth, an economist said on Tuesday.
“The flavour of the Budget will be spending. All of these numbers will sound very impressive and very large,” Sanlam investment economist Arthur Kamp told the Cape Town Press Club.
“But if you look at real growth, it's not going to be particularly strong.”
He predicted slow growth of around two percent a year.
Kamp said the Budget hinged on the amount being spent on wages for the public sector.
Currently, around 40 percent of earned revenue went to this compensation Budget.
He said the public sector wage agreement had managed to contain the wage bill in the last year, but the difficulty was keeping spending down in future.
Kamp said Gordhan faced a tough time in the present financial environment.
“The question you are asking Pravin Gordhan is: can he do what (former finance minister) Trevor Manuel did in the nineties?”
He said Manuel had managed to stabilise the debt ratio and bring it down, from around 50 percent of Gross Domestic Product (GDP) to around 20 percent of the GDP.
At that stage, tariff barriers were lowered, firms were becoming more competitive and there was lower inflation. Kamp said this had resulted in a “fantastic environment” for corporates and increased productivity.
The country had responded to the global recession in a “very, very poor” manner, by consuming.
He said government needed to reduce its use of resources in the economy, which had forced the private sector to save more and invest less.
Regarding taxes, Kemp did not predict any major announcements for the Budget speech on Wednesday.
However, the tax base was expected to broaden in a few years if budget deficits could not be managed.
Kamp said he did not doubt the National Treasury's competency. He only doubted the sustainability of a particularly precarious financial cycle. - Sapa