Finance Minister Nhlanhla Nene’s first mid-term budget speech revealed a stern plan to reduce growth in government consumption spending this year and in the future and increase tax revenue in the next budget.
Finance Minister Nhlanhla Nene’s first mid-term budget speech revealed a stern plan to reduce growth in government consumption spending this year and in the future and increase tax revenue in the next budget.
These were the proposals made by Nene Wednesday 22 October at the Midterm Budget Policy Speech.
The proposals aim to reduce the budget deficit, the budgeted difference between government spending and income, and stabilise debt, which at current levels is set to reach R2.4 trillion in 2017/18.
With stagnant economic growth estimated at 1.4% for this year and targeted to reach only 3% in 2017, Nene said that “this course can no longer be postponed”.
The mid-term budget policy statement revealed that the total spending for 2014/15 will be around R6 billion less than the estimate in the February budget.
This was achieved by using the buffer fund of unallocated reserves, savings, and ironically because of under spending.
This reduced spending is expected to continue after the minister announced plans to tighten the budgets for national departments, root out tender fraud, combat corruption and stabilise the government employment rate.
Nene used national department budget cuts as an example of their stringent cost cutting.
This will reduce travel expenditure by R555 million, advertising and communications by R240 million, consultant spending by R370 million and venues and catering by R150 million.
To the dismay of the taxpayers, the tightening of expenditure will be coupled with increased tax revenues.
While specific tax proposals have been postponed until the next budget speech, Nene said tax will be reformed to increase tax revenues by at least R12 billion in 2015/16, R15 billion in 2016/17 and R17 billion in 2017/18.
Professor Matthew Lester, from Rhodes Business School, told Grocott’s Mail in an email that VAT reform should be a “last resort”, and that efficiency should rather be the focus.
“I am hoping that the almost inevitable VAT increase in 2015 can be avoided as it will create social tension,” Lester said.
"With some skill we could make it through efficiency in both spend and collection.”
Although Nene’s efforts to reduce the budget deficit do show promise, it seems another rating agency downgrade may still be on the cards for South Africa.
“The debt trajectory has been capped at 45% of GDP.
We hope that will be enough to stop the downgrade in sovereign status. We will have to wait and see,” Lester said.
