POLITICS

Gordhan forced to table conservative budget - Tim Harris

DA MP says budget deficit to exceed 5% of GDP, welcomes move to scrap means test for old age pensions

Finance Minister forced to table a conservative budget but opens the door to key DA economic policies

South Africa's fiscal policy is in a holding pattern. Faced with a R16bn shortfall in tax revenue, the Finance Minister has been forced to run a budget deficit in excess of 5% of GDP for the first time since 2009, when we had to respond to the global financial crisis.

The effect of the larger deficit will be to drive government debt higher over the medium term and when contingent liabilities are included, government's net indebtedness now extends beyond 50% of GDP. This will not mitigate the ratings agencies' concerns about a lack of fiscal space.

We are pleased, however, that key DA economic policies have been included, albeit with only modest funding. These include:

  • A watered-down version of the Youth Wage Subsidy funded with R500m; considerably less than the R1,6bn earmarked for the original version - we hope the Minister has the political capital to see it implemented;
  • A R2,9bn tax incentive package for Special Economic Zones, including a generalised wage subsidy and cut in income tax from 28% to 15%;
  • Minor reforms of small business taxation totalling a modest R360m; and
  • Increased tax deductibility of charitable donations.

On the old age pension, we are frustrated that it has been increased by less than inflation, but welcome the move to scrap the means test.

The budget is broadly aligned with the National Development Plan (NDP), which we welcome, but it lacks detail on key reforms in the Plan that would drive growth higher or hold public servants or teachers to account.

In particular, the Minister has failed to table solutions to deal with the state's incapacity to spend on infrastructure, which has led to infrastructure budgets remaining underspent by an average of 22% over the past three years.

To exacerbate these shortfalls, spending on infrastructure as a percentage of GDP in the budget is projected to fall to 7% over the medium term; well below the 10% targeted by the NDP.

The Minister confessed that South Africa's growth of 2.7% is a drag on the rest of the African continent, which is growing at 5.8%. However, proposals aimed at integrating our economy with the rest of the continent amount to tinkering round the margins, as long as key blockages such as exchange controls remain.

Statement issued by Tim Harris MP, DA Shadow Minister of Finance, February 27 2013

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