State of the Nation: Finance Minister Pravin Gordhan is left holding the fiscal baby
The State of the Nation speech was the easy part. Now Finance Minister Pravin Gordhan is faced with a difficult balancing act in his National Budget address, scheduled for 22 February. While the strong commitment to infrastructure-led growth is welcome, it will probably leave Minister Gordhan with a funding shortfall. He has also been left to do the heavy lifting on small business and the Youth Wage Subsidy.
The Democratic Alliance (DA) welcomes the fact that investment in infrastructure was at the centre of President Zuma's State of the Nation address - a version of the successful "Cape Town model" of infrastructure-led growth.
Because, if the government wants to scale up its role in the economy, then investment in infrastructure is the place where intervention is much needed. The National Planning Commission has calculated that the maintenance backlogs for electricity distribution alone is R30 billion. The backlog in maintenance of our roads is R149 billion.
In order to make up these and other backlogs, and build the infrastructure that will enable the South African economy to grow at 8% a year, we need to invest around 10% of our GDP in infrastructure, equivalent to R330 billion in 2012. Given the Finance Minister's stated investment of R808 billion over the medium term, we are left with a shortfall of around R51bn this year.
Provided it is "new money", the R300 billion that the President announced Transnet will be spending over seven years could go some way to filling the fiscal hole. But even in a best case scenario of R36 billion spent in the first year, it would still leave a shortfall of R15 billion. If government does not get the private sector to partner on this investment then the public enterprises would have to step up, but it is not clear that their balance sheets can stretch further than they have.
The only remaining option would be to use the national budget, but add to this shortfall the President's much needed largesse on port charges (R1 billion) and housing loans (R1 billion), plus a recent downward revision of R13 billion in projected tax revenue, and it seems clear that Minister Gordhan has been left holding the fiscal baby.
The President's neglect also means that the Finance Minister will again be left to reassure the small business sector that government hasn't forgotten them. Last year he pointed out that "businesses that employ fewer than 50 workers account for 68 per cent of private sector employment". They also account for 50 per cent of GDP and it is time for government to start putting its money where its mouth is by giving them incentives to match the generous 12(i) Income Tax incentive available to big business.
Last, but not least, the Finance Minister will walk to the podium to give his Budget speech with Cosatu's sword hanging over his Youth Wage Subsidy. He told South Africa that the subsidy would be implemented on 1 April this year, but we understand that Cosatu is refusing to even discuss it at Nedlac.
This does not technically prevent the Minister from implementing it, but it seems clear that he would only be able to do so under the President's forward cover. The President's deafening silence on the issue appears to have doomed hundreds of thousands of young, work-seeking South Africans to continue in unemployment.
Statement issued by Tim Harris MP, DA Shadow Minister of Finance, February 10 2012
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