/ 16 February 2010

Budget to balance social needs with lower revenue

South Africa unveils a new budget on Wednesday that will aim to pull cash from already stretched state coffers to back President Jacob Zuma’s promises to create jobs and improve social services.

Finance Minister Pravin Gordhan presents the budget to Parliament as South Africa is emerging from its first recession since apartheid, with 900 000 jobs lost last year.

“We’re just getting out of a recession, the minister’s revenue is under tremendous pressure and the fiscal deficit will be close to 8% of GDP,” said Dawie Roodt of the Efficient Group of financial-services companies.

“Given those sort of numbers, I think it’s fair to say that this is going to be a very difficult budget.”

In October, Gordhan, who replaced long-serving Trevor Manuel last year, slashed R70-billion off initial revenue forecasts and predicted a deficit at 7,6%.

But Roodt said Gordhan, whose predecessor was celebrated for fiscal prudence that shielded the brunt of the global crisis, had the luxury of putting off spending cuts or tax hikes.

“He doesn’t have to do it yet and the reason behind that is simply because state debt is relatively low. For the time being we can actually afford to run a huge fiscal deficit. But that is only for a year or two.”

“That makes it much easier for him to present the budget that is still quite expansionary without getting the fiscus into financial trouble.”

South Africa has in recent years ramped-up state spending, ploughing billions into infrastructure ahead of the 2010 Soccer World Cup, which starts in June, and widening social grants to a poverty-wracked society.

In his State of the Nation address last week, Zuma said the anti-recession push will continue with capital investments underpinning recovery efforts amid targets for more jobs, better schools, welfare and housing.

Gordhan is likely to stick to the government’s chief priorities, said Standard Bank economics analyst Goolam Ballim.

“It is likely that the essences of the government programme will continue to reflect national priorities — for instance infrastructure, education and health — while simultaneously pursuing this within a sustainable financial model.”

South Africa’s economy created 89 000 jobs in the last three months of 2009 but the unemployment rate remained high at 24,3%, with nearly 900 000 jobs lost over the year.

In his speech, Zuma said economic activity was rising but was cautious about the pace.

“Economic indicators suggest that we are now turning the corner. It is too soon, though, to be certain of the pace of recovery,” he said.

In October, Gordhan predicted that South Africa will see 1,5% growth this year, which economist Chris Hart of Investment Solutions said he was comfortable with.

“It’s going to be slower in the first half and accelerate quite nicely in the second half of this year once we’ve got the World Cup behind us,” he said.

But the government needed to tighten its belt, he added.

“Everybody has to tighten their belt, and it cannot be where the government spending is sacrosanct over and above everybody else’s.” — AFP