THIS was always going to be the budget where the chickens came home to roost, but it also signifies a crossroads of sorts. The two are not unrelated — the hard reality of the Treasury running out of fiscal space has forced it into a position where it has had to choose between cutting expenditure and boosting revenue and, since the former is nigh on impossible politically, whether the extra funds will come primarily from higher taxes or more rapid economic growth.
The good news is that, although the higher-than-expected budget deficit shows the economic chickens are roosting with a vengeance, Finance Minister Pravin Gordhan appears to have chosen the path of righteousness by nodding in the direction of controlling expenditure and sought to boost revenue and job creation by stimulating growth.
Of higher taxes, there is little evidence in the 2013-14 budget — neither the mooted new mining superprofit tax nor the higher personal tax rate for the superwealthy has materialised. That does not mean higher taxes will not be on the cards in future, but Mr Gordhan has wisely decided to hold off while the economy is in such a fragile state.
The goose survives to lay its golden eggs another day, even if those eggs are getting smaller. Tax revenue is expected to be R16.3bn less than the 2012-13 budget estimate of R826bn, R13.2bn less than the estimate for 2013-14 and R27.8bn less than the estimate for 2014-15.
No wonder the budget deficit for 2012-13 has been revised upward to 5.2% of gross domestic product (GDP) from 4.8%, and net debt is expected to stabilise somewhat higher than forecast a year ago, at a little more than 40% of GDP. The goal remains to reduce the budget deficit to 3.1% by 2015-16, which would allow for the stabilisation of debt, although that may be too ambitious. Certainly, it is predicated on many of South Africa’s economic indicators improving over the next two years and the economic growth rate doubling at the very least. While the expected savings Mr Gordhan flagged on Wednesday are not very significant in the greater scheme of things, we should not be too dismissive of the Treasury’s brave attempt to rein in state spending. The aim is to reduce real growth in spending to an average of 2.3% over the next three years, compared with the 2.9% forecast in October. That does not amount to austerity of the southern European variety, and a good thing too — things may not look good for South Africa economically, but we do not yet need a Greek-style self-immolation.
The principle is important, however. By introducing measures to control spending, review expenditure, demand value for money in government programmes and agencies and strengthen the state’s implementation capacity, Mr Gordhan is sending out a strong message: the days of profligacy and waste are over; state spending must be effective or it will be reallocated to areas where it will get results.
Of course, this approach demands political will, and that could be the Achilles heel of Mr Gordhan’s plan to get the economy out of the corner his Cabinet colleagues have painted it into. President Jacob Zuma has emerged from his party’s elective conference in a stronger position than before, and there have been signs in recent weeks that he is finally prepared to adopt positions that are in the national interest, even if they risk alienating his political allies. The reintroduction of the youth wage subsidy concept in this budget is therefore an encouraging sign.
The government’s focus must now be on growing the real economy, and that means implementing the infrastructure-expansion programme efficiently, encouraging private-sector investment by removing obstacles to business expansion, and addressing the structural flaws in the labour market.
In short, the National Development Plan is the lifeline South Africa must grab with both hands.