Gordhan: Be prepared to do things differently

“Be prepared to do things differently” was the message from Finance Minister Pravin Gordhan in his maiden budget speech in Parliament on Wednesday.



But while some policy shift around government priorities were evident in the budget, major fiscal and monetary policy changes were not.

Inflation targeting would remain, and no steps to peg the rand exchange rate were tabled.

However the deficit was set to rise to 7,3% in 2010, somewhat lower than expectations, and declining to 4,1% of gross domestic product (GDP) by 2013.

Gordhan emphasised that the inflation targeting policy included enough flexibility to account for external shocks, as well as take broader economic circumstances—such as growth and employment trends—into account.

Alliance partners the Congress of South African Trade Unions and the South African Communist Party have criticised inflation targeting as being too stringent and not taking into account of the broader needs of the economy.

Instead, the government aims to target government spending on key priority areas intended to create a new growth path for the local economy.

Aspects of the new growth path include:

  • Reducing unemployment among young people

  • Supporting labour intensive industries through industrial policy interventions, skills development, public employment programmes and a rural development strategy

  • Sustaining high level of investment by the public and private sectors, as well as increase South Africa’s savings levels

  • Improving the performance of the state, especially the quality of training and education

  • Reforms to increase inclusion and participation in the labour market, alongside efforts to improve competition in product markets

  • Keeping inflation low, striving for a stable and competitive exchange rate and providing a buffer against volatility

  • Raising productivity and competitiveness, opening up the economy to investment and trade to boost exports.
Gordhan said that with revenue down and expenditure still rising, the government would have to source the funds needed to promote growth and create jobs through increased public borrowing.

However, in a bid to find the funds to promote growth and create jobs, the country would be ramping up its debt to 44% of gross domestic product (GDP) in the next five years—levels not seen since the late 1990s. This was expected to decline in the long term.

Economic growth was only expected to reach 2,3% for 2010, but this would increase to 3,6% by 2012.

Gordhan warned however that without an improved rate of economic growth, job creation would remain slow.

Action plan
Key to improving the growth prospects of the country was a new industrial policy action plan, set to be launched by the Department of Trade and Industry on Thursday.

It is expected to play a key role in the government’s newly imagined growth path, said Gordhan, and would target labour absorbing industries and emphasise green economy initiatives “that create new opportunities for enterprise development”.

An additional R3,6-billion was allocated to the DTI for the action plan.

The government would promote the uptake of young job-seekers and school leavers through a subsidy to employers who hire people between the ages of 18 and 24.

This would include a cash reimbursement to employers for a two-year period, operated through the South African Revenue Service payroll system.

Initial estimates suggest that 500 000 school leavers could be employed by 2013.

Infrastructure investment
Public infrastructure investment was set to reach R845-billion in the next three years, with public enterprises such as Transnet and Eskom receiving the lion’s share, or 53,6%, of the money. This was however lower than the expected R872-billion outlined in the medium-term budget, chiefly due to the difficulties of municipalities in raising revenue.

Gordhan stressed the government would reprioritise spending towards targeted outcomes such as improving education, health, community safety and creating jobs.

A further R3-billion was awarded to HIV/Aids programmes, with the aim to increase the number of people on antiretroviral treatment to 2,1-million by 2013.

Social grants like old-age pensions and disability grants would rise by R70 to R1 080 a month, while child-support grants would rise by R10 to R250.

He also noted that increased use of public private partnerships could be expected in the health sector, particularly hospitals.

“Alongside longer term reforms to the financing of health care, a closer partnership between the public and private healthcare systems is a pre-requisites for the introduction of a national health system,” he said.

Gordhan came down hard on the civil service, emphasising continued efforts to curb wasteful expenditure and inefficiencies within departments.

Through “corrupt practices, inefficient procurement, poor planning” and “collusion with the private sector”, government was not getting the “value for money from our purchases that our people deserve”.

Aside from savings of R23-billion identified within government departments, additional funds have been set aside to improve supply-chain management, while departments have “intensified efforts to bring perpetrators of tender fraud to book”, said Gordhan.

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