Finance Minister Trevor Manuel has delivered what he terms a “can do” budget that aims to put the doomsayers and naysayers at rest by boosting infrastructure and people.
Manuel noted that this was important or else the doomsayers and naysayers would simply “take control”.
Plenty of talk of late has centred on the slowdown in growth and the need for funding Eskom, on top of the enormous social spending path the country is already on. It was viewed as not being sustainable at current levels.
However, Manuel emphasised that the national budget is a statement of confidence that shows that the government is investing in infrastructure and people to deal with the challenges the country is facing.
Growth has been revised down to just 4% in 2008 from the 5% estimate for 2007. The budget surplus, however, increases to 1% of GDP from 0,8% expected in October, prompting some analysts to feel that this is not then truly counter-cyclical.
If growth were to slow, then a small deficit may have been in order. However, it appears that large revenue intakes are still going to head South Africa into surplus territory despite still strong spending plans. While corporate intakes decline, the slack is picked up by growth in personal-tax intakes.
Expenditure remains on track at 26,7% of GDP in 2008/9 to R611,096-billion from the R599,9-billion seen in October. It is only marginally higher than the 26,5% of GDP seen in 2007/08.
Social expenditure is rising, but at a slower pace due to the high base.
Therefore the structural budget balance is broadly stable at a deficit of 1,2% of GDP over the next three years. According to the Treasury, it provides ability to finance the current expenditure should the economic cycle reverse.
The three key economic themes are investment in productive capacity, raising net exports and reducing poverty and inequality.
Over the next five years, investment in state-owned enterprises will continue to rise strongly, contributing to the goal of raising gross fixed capital formation to 25% of GDP.
Manuel is planning to help shoulder the burden by committing up to R60-billion of taxpayers’ money to help meet cash-flow requirements for Eskom. However, the bulk of the spending will have to come from Eskom and its customers. That means higher electricity prices.
Meanwhile, the high current-account deficit has signalled the importance of strengthening trade and industrial policy. Manuel noted that is therefore essential to raise exports to pay for higher capital investment.
The government’s anti-poverty strategy, in the meantime, rests on three legs — broadening social assistance, creating jobs and enhancing the social wage.
On the whole this budget has taken into account the shifting economic sands and aims to set the stage for happier times ahead.
The reforms to company tax via a cut in rates to 28% are a clear signal of where the priorities lie — employment and growth.
However, whether it is truly counter-cyclical is open to debate due to the high deficit in a slowdown period.
Over the longer term, however, it all comes together and the funds gathered now will come in handy if more vicious storms than envisaged do descend. — I-Net Bridge
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