Nene announces tough measures in Medium Term Budget to revive SA economy

23 October 2014

At a time when South Africa is experiencing sluggish economic growth, Finance Minister Nhlanhla Nene has announced a Medium Term Budget for 2014 which looks to generate growth and reduce poverty in the country.

Presenting the medium term budget on Wednesday, 22 October, Nene said South Africa is going through a difficult time, with governments around the world facing difficult choices because the gap between what is required and what can be afforded.

During the tabling of the 2014 Budget in February this year, South Africa expected the economy to grow by 2.7% in 2014, according to Nene. However, this has been revised to 1.4% with Treasury projecting that growth will reach 3% in 2017.

Weak global environment

“This downward revision is partly because of a weak global environment, including the slowdown in Europe, China and other emerging economies. But it also reflects obstacles to our own development: energy constraints, labour market disruptions, skills shortages, administrative shortcomings and difficulties in our industrial transformation,’ said Nene.

In addition, South Africa is not making enough progress in raising incomes or reducing poverty. Nene said far too many people in the country are unemployed, deepening inequality and heightening vulnerability. “We import considerably more than we export,’ he said.

Government is not collecting enough taxes and government’s debt continues to rise as a percentage of GDP. Nene said the Medium Term Budget seeks restore the balance to the nation’s finances, bolster investment and achieve better value for money in public expenditure.

A change of course is needed for South Africa to grow, and this growth has to be aligned to the National Development Plan’s vision to build a more equal and prosperous society. Nene said government’s actions over the next five years to achieve this vision are set out in the Medium Term Strategic Framework (MTSF). “It highlights the need for a compact between a capable developmental state, a thriving business sector and strong civil society. It identifies employment, education and enhancing the capacity of the state as central policy objectives,’ he said.

Medium Term Strategic Framework

The MTSF includes programmes aimed at improving South Africa’s competitiveness, particularly in new areas such as oil and gas development, renewable energy and green technology. The framework also recognises the need to support job creation through sector-based interventions, employment incentives, the expanded public works programme and the Jobs Fund.

However, there are structural changes that need to be implemented, according to Nene. These shifts should focus on manufacturing, agriculture, the energy sector, mining, transport and communication, and the financial sector.

“These are areas of structural transformation, Honourable Speaker, that involve investment and change across the economy as a whole, bringing together the public and private sectors, civil society and local initiatives.

2014/15Adjustments Appropriation

Nene said Treasury has set out the Adjustments Appropriation for 2014/15, and the additional allocations for unforeseeable and unavoidable expenditure include:

  • R157 million on the Cooperative Governance vote to repair infrastructure damaged by disasters, and R35 million for emergency water and sanitation interventions
  • R32.6 million for the Department of Health for Ebola control and prevention measures, including support for affected countries and
  • R350 million for International Relations and Cooperation to compensate for the depreciation of the Rand.

“The Adjustments Appropriation also includes R620 million for the digital broadcast migration programme, as indicated in the February budget speech,’ said Nene.

Adding, Nene said after taking into account the unallocated reserve, declared savings and projected underspending, total expenditure in 2014/15 will be about R6 billion less than the February estimate.

Revised revenue estimates

“The revised revenue estimate is R956 billion, leaving a deficit on the main budget of R180 billion. Surpluses of the social security funds, provinces and public entities are estimated at R27 billion. This brings the consolidated budget deficit to R153 billion, or 4.1% of GDP, which is in line with the February budget estimate.’

Turning to government spending, Nene said government has reached that point where it has to implement drastic measures. In this regard, he said fiscal consolidation can no longer be postponed.

Nene said in order to reduce the budget deficit from 4.1% this year to 2.5% over the next three years, the expenditure ceiling will be lowered by R10 billion in 2015/16 and R15 billion in 2016/17.

To effect the lower ceiling, national government will:

  • Freeze budgets of non-essential goods and services at 2014/15 levels
  • Withdraw funding for posts that have been vacant for some time and
  • Reduce the rate of growth of transfers to public entities, particularly those with cash reserves.

Nene said across national departments, planned expenditure on travel and subsistence, conference venues and catering has been cut. “Advertising and communications budgets have been reduced. Allocations for consultant services have been capped. These steps will contribute savings of about R1.3 billion over the next two years,’ he said.

Revenue division

On division of revenue, Nene said Treasury proposes a national appropriation of R1.2 trillion in 2015/16 , rising to R1.3 trillion in 2016/17.

“The proposed division of revenue allocates 48 per cent to national departments, 43 per cent to provinces and 9 percent to local government over the MTEF period. Allocations to national departments will total R495 billion in the current year and will increase to R585 billion in 2017/18,’ said Nene.

SAinfo reporter