News and events

All eyes on Gordhan's mid-term budget

23 October 2012

Details on the government's planned infrastructure drive and economic growth forecasts are some of the issues business hopes to gain clarity on when Finance Minister Pravin Gordhan tables his 2012 medium-term budget policy statement (MTBPS) in Parliament on Thursday.

South African Chamber of Commerce and Industry (Sacci) CEO Neren Rau said on Wednesday that the chamber expects Gordhan to provide details of how the government plans to fund the 15-year, R4-trillion expenditure on infrastructure and the principles guiding private sector involvement in the process.

Earlier in the year, the government unveiled a massive, state-led infrastructure development programme that will cost around R4-trillion over the next 15 years, with around R844-billion to be spent over the next three years.

Damper on the growth outlook

However, widespread industrial action and illegal strikes have put a damper on the country's growth outlook, Rau noted.

"It is inevitable that South Africa's economic growth outlook will weaken due to the recent production stoppages brought about by widespread industrial action and illegal strikes. Despite official statements confirming South Africa's economic stability, international investors often look for cold and hard facts like the size of the fiscal deficit to GDP."

Sacci expects clarity on the medium term fiscal outlook and further details on planned expenditure cuts to fruitless items that do not improve South Africa's competitiveness, Rau said.

It also expects to hear of government initiatives to mitigate the further lowering of state-owned enterprises' credit ratings to below investment grade.

This month, rating agency Standard & Poor's announced its credit rating downgrade of Eskom by one notch, as a consequence of its recent decision to downgrade South Africa's sovereign rating.

On the issue of taxation, Sacci said the government should resist the pressure to increase taxes as a means to manage the fiscal deficit, adding that the capacity of business to support further taxes was constrained and would affect productive investments.

Sacci also expects the minister to provide clarity on the government's plan to implement a youth support programme. Sacci believes that the opposition from labour unions to the youth wage subsidy scheme can be negotiated to find a solution workable for all social partners.

'Challenging' backdrop

Standard Bank macroeconomic strategist Johan Botha said the backdrop to Gordhan's medium-term budget policy statement was challenging, given the weak and uncertain global environment, deteriorating domestic economic conditions and downgrades by rating agencies.

In a research note, the bank said budget estimates for the 2012/13 fiscal year were based on GDP growth of 2.7% in 2012.

"We forecast GDP growth of 2.5%, implying that the increase in tax revenue streams into the fiscus' coffers is likely to slow down in the second half of the fiscal year."

Additionally, the bank expressed doubt about the estimated 4.6% budget deficit of GDP for the current year.

"The estimated budget deficit of 4.6% of GDP for the current fiscal year appears doubtful. In addition, reducing fiscal spending commitments to induce a lower deficit is extremely difficult. We believe it is more likely that the deficit will end up approximately 0.3% of GDP higher than originally anticipated."

Standard Bank said Gordhan would have to balance the need for additional stimulus in a struggling local economy against the need to curb the growth in spending to reduce the budget deficit and government debt.

Source: SANews.gov.za