Economists believe the all-important Budget=20 deficit is still too high. Reg Rumney reports
Finance Minister Chris Liebenberg did not go far enough=20 in cutting the projected Budget deficit to 5,8 percent=20 for the 1995/96 financial year.=20
This is the feeling among economists canvassed by the=20 Weekly Mail & Guardian.
They felt the Budget does not extricate South Africa=20 from its mire of public debt, and that economic growth=20 allowed more room to cut the deficit and government=20
“Clearly it is not enough,” says Azar Jammine of=20 Econometrix. He is one of a number of economists who=20 would like to have seen a much smaller percentage –=20 even if taxes had to be raised to achieve the deficit=20 cutting. “We’re still on the same road.”
The expected 5,8 percent deficit before borrowing –=20 which is expressed as a percentage of gross domestic=20 product, the total value of the output of goods and=20 services — is a decline from both the expected=20 deficit and the actual deficit for 1994/95. The 1994/95=20 deficit turned out to be 6,4 percent of GDP, slightly=20 down from the budgeted figure of 6,6 percent.
The latest expected deficit is based on what Liebenberg=20 dubs a conservatively estimated growth in GDP of 2,7=20 percent during the 1995/96 fiscal year from the 1994/95=20 fiscal year. Economists are estimating growth this year=20 of around 3,5 percent, which would give much more=20 leeway for cutting the deficit by increasing revenue=20 over spending.
Dissaving — using borrowing for recurrent spending,=20 mainly in public service salaries — has not been=20 eliminated. And Liebenberg has not done what=20 conservative economists would like him to, which is to=20 give an exact time frame for the elimination of=20
Liebenberg’s Budget speech stressed the importance of=20 being investor-friendly.=20
Old Mutual economist Terence Moll disagrees. “My=20 initial impression is that the Budget was looser than I=20 would have expected bearing in mind that the financial=20 rand was abolished.” The scrapping of the import=20 surcharge on “luxury” goods and certain “white goods” – – namely, domestic appliances — will mean higher=20 consumer spending, he says. “This is a domestic=20 spending rather than a growth budget,” he says. If the=20 deficit is 5,8 percent with economic growth more than=20 three percent, he notes, it could balloon up in a=20
If growth is higher than Liebenberg’s estimate, revenue=20 would rise substantially, and the denominator itself=20 would be higher. So if spending did not rise as well,=20 the deficit could look much more attractive at the end=20 of the year.
Syfrets economist Elmien de Kock believes revenue on=20 several counts is underestimated. The figure for the=20 increase in tax from non-mining companies is 10=20 percent, she says, which is too low, compared to the=20 previous year’s increase. Similarly, she believes the=20 figure for the expected increase in the tax take from=20 individuals is too low at 11 percent; and the expected=20 rise in the Value Added Tax take of 13 percent should=20 be much higher.
Southern Life economist Sandra Gordon points out that=20 spending is set to rise in line with Liebenberg’s=20 expected inflation figure of 9,5 percent, but=20 Southern’s estimate is 10,5 percent.
Moll reckons both revenue and spending are=20 underestimated in the Budget. Spending on public=20 service wages and salaries is set to rise a nominal 7,7=20 percent in the Budget — including an amount of R2,5- billion set aside for public sector pay adjustments. In=20 the last fiscal year it rose 18,3 percent. Moll is=20 sceptical that the government will be able to keep the=20 lid on public service pay to that extent.
The more attractive deficit hides a bigger problem=20 that, as Liebenberg pointed out in his speech, is a=20 powerful argument for further government belt- tightening. Government debt is projected to reach some=20 R246-billion at the end of the 1994/95 year, or=20
55 percent of GDP. The interest burden of public debt=20 is projected at 18,5 percent of total spending, making=20 it the largest spending item after education.=20 Liebenberg observed: “It means that nearly R1 out of R5=20 of taxpayer’s money is spent on servicing the debt. Can=20 there be a more compelling justification of the need=20 for fiscal prudence?”