South Africans must stand together during tough times
Mid-Term Budget Policy Statement Commentary 2016
Yesterday’s Medium-Term Budget Policy Statement (MTBPS), presented by Minister of Finance Pravin Gordhan, was followed with keener-than-usual interest by armchair observers, coming as it does during a time of exceptional economic volatility, as the minister himself acknowledged. Recognising this, this year’s growth forecast has been revised down to 0.5% for this year, compared to 0.9% in February.
The minister’s speech functioned as a clarion call for South Africans to stand together and contribute to our shared goals and values in order to create a sustainable and inclusive society. What we seek, and more can be done if we make the right choices, he reminded us. It is true that we have not yet achieved the social progress we need, but we must continue the journey.
In particular, the pressing nature of post-school expenditure has been acknowledged, with this item growing by 9.2% overall – only surpassed by growth in debt service costs. University subsidies will grow at 10.9% each year. The National Students Financial Aid Scheme – the primary government-funded means by which poor students receive bursaries and soft loans – will see its transfers grow by 18.5% per year.
At the same time, the structure of the global economy has now changed, with lower commodity prices and more competitive trade conditions hurting South Africa’s ability to create wealth. As a result, Gordhan’s MTBPS continues to prioritise capital investment and a stabilised national debt. Revenue forecasts for the current financial year have declined by R23 billion since February, and next year’s Budget, he warned, will need to raise an additional R28 billion in tax revenue. Some of the changes include:
- Giving effect to the extension of the special voluntary disclosure programme from 01 October 2016 to 30 June 2017
- Employment and learnership tax incentives to be extended to 28 February 2019 and 31 March 2022, respectively
- Carbon tax and sugar tax consultations which are continuing
The MTBPS continues to limit planned expenditure for the next three years, as it has done since 2012, in order to steer a prudent course as growth slows and revenue forecasts decline. Several administrative enhancements are underway in order to tighten spending controls. These include a Public Procurement Bill to promote empowerment, small enterprise development and job creation, revised Preferential Procurement Regulations, a streamlined tender process, and the renegotiation of supplier contracts to save R25 billion a year by 2018/19.
Reforming state-owned enterprises – such as SAA and the Post Office – is underway, not simply to address financial vulnerabilities but to encourage broader economic participation. In many ways, this represents a return to the original government mandate for parastatals, which recognises and seeks to leverage the central role they play in the economy.
At the same time, the minister calls on all of us to seize the opportunities for economic growth before us. While international growth forecasts remain precarious – with global growth not expected to top 3.1% in 2016 – African growth rates are less than half of this estimate, at 1.4%, thanks to plunging commodity prices and a lack of economic diversification. Only 11% of the continent’s trade comes from within the region. This represents a sizeable opportunity should larger countries cooperate, such as South Africa, Nigeria, Angola, and Kenya, to grow trade within the continent. South Africa’s growth and development – as Gordhan reminded us today – has a not-insignificant effect on its neighbours, who would, in turn, be able to create jobs and support development.
As Gordhan himself said earlier today:
“We are resilient, and we have sound foundations on which to build. But it is action, to bring clarity where uncertainties remain, to address organisational weaknesses, to bring closure to infrastructure transactions and to accelerate trade and investment – that brings hope. It’s up to us.”