22 February 2012
Amid an uncertain global economic outlook, South African Finance Minister Pravin Gordhan on Wednesday presented a circumspect yet upbeat Budget speech detailing how the infrastructure projects highlighted by President Jacob Zuma earlier this month would be funded.
Gordhan also called on South Africans – including the country’s corporate sector, which has millions locked up in savings – to take advantage of new opportunities in emerging markets and on the continent.
Revenue for 2012/13 is forecast at R904.8-billion – 27.4% of gross domestic product (GDP) – and expenditure at R1.058-trillion, resulting in a budget deficit of 4.6% of GDP for the 2012 financial year.
Finances ‘remain in good health’
But Gordhan said the country’s finances remained in good health, and pointed out that the deficit would be brought down to three percent of GDP by 2014/15.
Government borrowing is also expected to moderate as the economy recovers and as fiscal consolidation proceeds, with public debt peaking at 38.5% by 2014 – up from 36% in the next financial year.
He also noted that while 365 000 jobs were added in the year to December 2011, unemployment remained high at 23.9%.
Over the next three years, imports are projected to grow quicker than exports, such that the deficit on the current account is expected to widen from 3.3% in 2011 to 4.4% in 2014.
Inflation is expected to rise from five percent in 2011 to 6.2% this year before tapering off to 5.1% in 2014.
South Africa’s projected inflation this year, however, is lower than the average expected for sub-Saharan Africa (8.3%) and in line with that of emerging economies (6.2%).
Gordhan also announced R9.5-billion in personal income tax relief; revealed further measures to increase tax compliance; announced tax credits for medical-aid scheme contributions; and proposed measures to get households to save more.
He said changes to procurement policies and practices would be made and tough enforcement introduced to tackle fraud and corruption.
Financial management in the public sector would also be strengthened to ensure that taxpayers’ money was used effectively.
Education, health and social assistance
The bulk of the government’s R1.058-trillion budget would, as in previous years, be spent on education, health and social assistance.
Much of this is helped by the additional R55.9-billion the government has collected, to spend over the next three years.
This includes an additional R9.5-billion for an economic competitiveness and support package – with R2.3-billion of this going to special economic zones – R6.2-billion for job creation, and R3-billion to fund the equalisation of subsidies to no-fee schools and the expansion of access to grade R.
R1-billion would also be allocated under this new amount for national health insurance (NHI) pilots projects.
Other significant amounts include R4.7-billion to be spent on solar water geysers, R4-billion for passenger rail coaches, R3.9-billion to upgrade informal settlements, R1.8-billion for municipal water infrastructure, R1.4-billion for early childhood development, and R1-billion for rail signalling and depot infrastructure.
Government spending is expected to reach R1.1-trillion next year – double what the government spent in 2002/03 in real terms.
Gordhan said the state would have about R4.5-trillion in consolidated resources available over the next three years, which would help fund its key infrastructure projects.
Tax revenue for the 2011/12 year has been revised up by R2.9-billion to R738.7-billion, and the National Treasury expected to collect R828.7-billion in 2012/13.
Revenue from tax would stabilise at about 25% of GDP, while public sector borrowing is expected to decline from 7.1% of GDP in 2011/12 to five percent in 2014/15.
Seizing emerging market opportunities
Gordhan said South Africa had to seize the opportunities presented by the changing world – which has seen massive economic growth in emerging countries, particularly India and China, while growth in advanced economies remains lacklustre.
He said that in the last five years, the Chinese economy had expanded by 60% and India by 45%, but that advanced economies had barely shown positive growth.
“As a major mining economy, we should be benefiting more from the continued buoyancy in commodity markets internationally. We also need to take advantage of rising demand for agricultural and manufacturing goods.”
He pointed out that about 85-million manufacturing jobs in China were expected to shift to other countries over the next few years.
“Do we have the right policies, conditions and boldness to enable South African businesses to gain from these intense shifts in the patterns of production and trade?”
The African continent presented another growing opportunity for South Africa.
Gordhan pointed out that Africa was expected to be the second-fastest growing region in the world – with sub-Saharan Africa growing at 5.5% this year compared to Asia’s 7.3%.
“As well as developing South African business interests in the continent, we should use the strength and sophistication of our financial system to turn our country into a true gateway for investment into, and development of, Africa.”
Partnership with the government
Gordhan called for a more dynamic partnership between the government, the private sector and civil society to take advantage of opportunities across Africa and the globe.
Gordhan also touched on Vision 2030, outlined in the National Development Plan, which is now receiving comments from the public before it goes before President Jacob Zuma around the middle of this year.
Among other things, Vision 2030 calls for lowering costs for households and businesses, increasing public infrastructure spending, growing the manufacturing and agricultural sectors, raising mining output, raising competitiveness and exports, and improving the labour market.