You might be surprised to learn that this year’s budget announcement by the government contained no wild promises, no big new spending plans that promised millions of jobs, no massive redistribution of wealth.
You might be surprised to learn that this year’s budget announcement by the government contained no wild promises, no big new spending plans that promised millions of jobs, no massive redistribution of wealth.
In spite of mediocre growth in tax revenue, no new taxes and no sharp increases in tax were unveiled.
This is, after all, an election year and the masses of people who elect the ruling party are poor.
The middle class, who pay the tax in this unequal society are comparatively few.
Yet Finance Minister Pravin Gordhan’s fifth budget is notable for what he has chosen not to talk about than what is actually in it.
Perhaps the excuse is that this administration still have to be returned to power after an election, and can’t be too ambitious in case another set of leaders is saddled with programmes they don’t want.
But it is noticeable that Gordhan did not unveil a vote-catching budget, and instead sent a message to investors that South Africa is business friendly, tweaking tax for small business and entrepreneurs and assuring business government will “provide an enabling environment for businesses to grow and create employment”.
The rate of growth of government spending has been capped at 2% above inflation, and spending on certain items which a left wing opposition might fix on, like land reform and land restitution, have actually been cut.
On the other hand, there was welcome news for investors, and the powerful credit rating agencies who influence the interest on our debt.
The Budget deficit, the difference between spending and revenue expressed as a percentage of our economic output, is set to decline over the next three years, to 2,8%.
As well as the tight control of the difference between spending and revenue, which has to be borrowed, the amount set for public sector wages is also reined in.
The budget does devote money to making a difference in people’s lives.
Good news for Makana residents, for instance, is that one promise is “strong growth in the resources made available to local government to deliver water and improve sanitation, including eliminating bucket toilets”.
Investment in railways, water, roads and ports is still promised, but not emphasized as it has been.
A lot of what is in the Budget seems to be fine-tuning, such as the many small changes to tax, for instance, raising the tax-free lump-sum amount that can be paid out of retirement funds from R315 000 to R500 000.
There are moves to make it easier to get environmental impact assessments approved, and water and mining licenses, as well incentives for investment.
There were promises to add to electricity supply and,”pursue the exploration of shale gas to provide an additional energy source for our economy.”
No mention was made, however, of when new nuclear power plants will be built, or when, and how much this would cost.
Previous amounts mentioned for an ambitious nuclear energy programme looked to be huge, saddling South Africa with an enormous future funding burden.
The only mention of the National Health Insurance (NHI) was of the pilot projects that precede the full implementation of the plan, and a white paper and financing paper are to be put before Cabinet soon.
Again the NHI is going to cost money, and will involve increased taxes.
Like the NHI, the carbon tax is still on the table, but has been delayed.
Major changes to tax are waiting on the recommendationsof a commission chaired by Judge Dennis Davies.
More importantly, absent were references to the strongly interventionist New Growth Path, the economic plan of Minister in the Presidency Ebrahim Patel.
Instead, the National Development Plan is the reference pointfor budgeting.
The government has not become perversely conservative.
As the Minister makes clear, the overall plan is still to change the economy radically to overcome past injustices.
Taking a sideswipe against the EFF and possibly Numsa, the Minister said, “The new economic order we seek …. [cannot]be built on populist slogans or unrealistic promises.”
It had to be “founded on realism and evidence”.
I don’t believe that this is not a case of talking left and acting right. Nor is it inexplicable lack of boldness.
The fact is that we may not appreciate exactly how narrow are the government’s room to maneuver because of economic realities.
The South African economy faces a future of mediocre economic growth, pressure on inflation because of the depreciation of the rand, higher debt costs, and an unpredictable world economy, still unsteady five years after what Gordhan called “a once-in-70-year economic earthquake”.
The reason South African income taxpayers weren’t squeezed more this year is that economic growth is expected to recover a bit, though nothing like what we need to make a serious dent in unemployment. There is no room for easy spending.
And perhaps in an election year it is not wise to announce what might renew opposition zeal, through confirmation of truly controversial projects such as new nuclear energy plants, or oil refineries, or signal extensive land restitution and reform, or announce new tax, however necessary that might be to fund the NHI.
It is not surprising that there was no mention of e-tolling and further user charges of this sort, which are a kind of tax.
Another way of looking at it is that this is indeed an election budget, because the hard choices have all been kicked down the road.
