Budget 2013: We're not on the brink of austerity (yet)
The cupboard is now bare. After this budget, if a healthy uptick in economic growth does not generate better taxes for government there is almost no room for it to grow its spending or cook up new policy plans to deliver services to South Africans.
Next time around, like old Mother Hubbard, Finance Minister Pravin Gordhan will face empty shelves — and to grow state spending or do anything new, existing programmes will get cut, or taxes will go up. To get by this time, the state dipped deep into its contingency reserve — the pool of unallocated cash used to cover unforeseen events such as natural disasters or to fund new policy proposals by departments and which, in recent years, has helped to carry hikes in public sector wages.
But in an interview following the delivery of his budget on Wednesday, Gordhan was adamant that South Africa is not being pushed to the brink of austerity.
- Watch the video as Pravin Gordhan talks about the corruption issue
Once it became clear, after the medium-term budget policy statement in October, that tax revenues would be short by R16-billion, the state looked to various strategies to address the problem, Gordhan said The first was to borrow more, pushing our budget deficit from the expected 4.8% to 5.2% of gross domestic product, and reduce real growth in government expenditure — or growth minus inflation — over the coming years from a projected 2.9% to 2.3%. Needless to say, the raised deficit is being watched by investors, analysts and ratings agencies, although alarm bells have not been sounded just yet.
Second, said Gordhan, the state cut, reprioritised and saved on existing government programmes, particularly those where spending has been slow or inadequate.
Finally, government looked to the contingency reserve for an additional R23.5-billion in the coming years, which is aimed at helping government bring down the widening budget deficit.
"We've narrowed that space so that we can actually ensure that we meet the fiscal consolidation project that we had originally set," he said. "Are we close to austerity? No, because we are still talking about real growth in expenditure."
Government now had to focus on ways to grow the economy in order to widen the tax base to help it raise revenue.
"There is enough proof coming from elsewhere in the world that austerity alone cannot solve all our fiscal problems and, if there isn't a growth strategy, invariably economies find themselves in trouble," Gordhan said.
The national development plan is intended as the blueprint government can use to direct these growth efforts, boosted by the existing emphasis on infrastructure development plans.
With the plan's emphasis on addressing major challenges, such as the growing youth employment problem, Gordhan saw fit to introduce plans for the youth wage incentive scheme.
Relief for young jobseekers in the form of a youth wage subsidy has been on the cards for about three years now, but has met with furious resistance from the labour movement. Over a number of past budgets the subject has bubbled in the background, but has consistently been confined to talks between government, business and labour at the National Economic and Development Labour Council. This year there appears to have been some movement on the subject.
The proposal has been redeveloped as a tax-incentive scheme, which will allow employers to claim a credit against payroll tax when hiring young workers.
"Cost sharing formula"
Gordhan framed this as a "cost sharing formula" between government and the private sector, to ensure that the latter has the "right incentive" to bring young people into the workplace to gain experience.
The scheme was part of a package of initiatives aimed at helping young people find work, including existing programmes run by the state, as well as those directed through tertiary education institutions.
The incentive scheme has yet to be passed by Parliament, however, where it is likely to face further heat.
Gordhan stressed that the scheme would take into account the fears expressed by labour that it could lead to the substitution of older workers.
"The details ... haven't been cleared up yet ... let's give it the space to move from the kind of discussions that have been held, to the place where every constituency is happy with the arrangement," he said.
Another consistent theme this week, and one that has underscored every budget Gordhan has delivered, is the need to cut waste, improve efficiencies and eradicate fraud and corruption.
The state has continued to emphasise prudent fiscal management, and is working to bring down its deficit and steady its borrowing. Under current circumstances, however, staying on this trajectory is becoming ever-more difficult. The imperative to get value for taxpayers' money and to ensure it is not stolen or squandered has never been greater.
Gordhan reiterated that this was a "tough task", but said he remained determined to see it stamped out.
However, the focus could not remain on the government's role as the origin of corruption or as the sole means to address it.
"Government doesn't contract government to deliver these services, government contracts the private sector!" he said.
He pointed to investigations being undertaken in the construction sector over anticompetitive behaviour during the build-up to the 2010 Soccer World Cup.
"If those allegations turn out to be true, that's a horrific exploitation of state funds and taxpayers' money," Gordhan said.
Overpricing by suppliers to the state — a consistent drain on resources — was not perpetrated by the state, he said, and government was looking at a range of measures to address corruption.
The treasury is investigating 76 business entities with contracts worth R8.4-billion that are believed to have infringed procurement rules, and the South African Revenue Service is auditing more than 300 businesses and scrutinising a further 700 in relation to contracts valued at an estimated R10-billion or more.
There are, however, structural problems in the procurement system. This means there are too many points at which officials can make procurement decisions, making monitoring and control extremely difficult. Gordhan gave the example of one department, in one province, where there are about 300 locations at which officials could make these decisions.
Immediate results to address this would not be forthcoming and it would be a long-term process to fix.
"But all of us must take a collective decision to take the opportunity to stop this wastage," he said.
Despite the difficulty of the task there was a "critical mass" of "good, honest hard-working people who will do everything to make sure we have clean practices within government", Gordhan added.