Gordhan’s Budget not all roses

Finance Minister Pravin Gordhan delivers his 2017 budget speech in Parliament. Photo: Kopano Tlape GCIS

Finance Minister Pravin Gordhan delivers his 2017 budget speech in Parliament. Photo: Kopano Tlape GCIS

Published Feb 27, 2017

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Johannesburg - The Budget speech on Wednesday was contradictory because, while Finance Minister Pravin Gordhan cut government spending, the interest bill continued to climb, leaving projected revenue growth outstripping expenditure growth, according to economist Sanisha Packirisamy.

Gordhan announced that the main Budget non-interest expenditure ceiling had been lowered by R26 billion over the next two years. The Treasury said the spending ceiling would be lowered by R10.2 billion in 2017/18 and R15.9 billion in 2018/19.

Packirisamy, an economist at MMI Holdings, said Gordhan had managed to keep South Africa on a prudent fiscal management path amid a low-growth environment.

“Overall, the Budget was negative for the South African consumer. That said, the Budget was redistributive in nature, attempting to alleviate the pressure for the lower-income earners, while the higher-income earners bore the brunt of tax increases,” she said.

Although VAT rates were held steady, the increases in fuel levies and the Road Accident Fund levy resulted in a regressive impact on consumers in the economy.

“Transport services, including bus and taxi fares, constitute an average of 9.8percent of the consumption basket belonging to South Africa’s bottom 60percent of income earners, whereas the operation of personal transport equipment, including fuel costs, make up an average of only 6.7percent of the consumption basket belonging to South Africa’s top 40percent of income earners,” Packirisamy said.

Business confidence had been in the doldrums since the global financial crisis. Low domestic demand and elevated policy uncertainty contributed to depressed sentiment.

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“We are only likely to see an improvement in business confidence levels once there is more clarity on the direction of economic policy and once demand prospects start to improve.

“It is likely that the survey for the upcoming consumer confidence print would have been conducted before the Budget announcement and the responses are unlikely to have factored in the recent tax adjustments.

"However, the next consumer print could see a dent in consumer confidence levels for high-income earners who are facing higher taxes,” she said.

NKC African Economics analyst Gary van Staden said Wednesday’s Budget speech had given no indication of future fundamental or structural reforms to improve economic growth performance to levels needed to address poverty, unemployment and inequality.

While it detailed how the government intended to raise R28 billion in tax revenue, Gordhan had given little detail on how bloated public sector and state expenditure on wages, waste and mismanagement would be managed.

Economic growth was expected to be pedestrian at best and woefully inadequate to deal with poverty, inequality and unemployment.

“The minister expects (gross domestic product) growth to improve from 0.5 percent in 2016 to 1.3 percent in 2017 and 2 percent in 2018, but did not warn that his department’s numbers tend to be revised downward almost before the ink has dried on the paper. Growth at these levels will be of no help in dealing with the key issues.

"This year, as for the past few years, South Africa’s per capita GDP will decline - in simple language, we get to go downhill,” Van Staden said.

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