Nene's mini budget

Nene’s mini budget

New Finance Minister Nhlanhla Nene’s presentation of the Medium Term Budget Policy Review (MTBPS) did not fill people with a lot of confidence. His assessment that the South African economy is at a turning point is correct, but he did not offer many concrete solutions that will ensure a swift turnaround.

It was Nene’s first major public appearance since his appointment and a lot has changed since Pravin Gordhan presented the national budget in February this year. In February, Gordhan aired growth expectations at a relatively good 2.7% for 2014, but less than eight months later, these expectations have dwindled to 1.4%. Some economists even believe this expectation is optimistic.

Despite this, Nene valiantly tried to sell a credible plan and belief that the National Treasury is in control and that he knows what needs to be done to ensure continued fiscal prudence. Nene correctly emphasised that state revenue is under pressure and that concerted efforts will be undertaken to increase revenue. He also emphasised that government spending must be reined in. Prior to Nene’s address, many commentators said it was inevitable that South Africans would see increased taxes to compensate for reduced tax revenue. Nene alluded to increased taxes, but that details will only be forthcoming when he steps up to the plate in February next year. South African taxpayers are already heavily taxed and any notion that taxpayers will have to fork out more come February will be met with much resistance. There is a perception that government is wasting money and that corruption is out of control ­– from local government right through to the top. Any rise in taxes will just fuel this already untenable situation.

Superficial belt tightening

Nene tried to show that government would also come to the party and tighten its belt. His proposed savings of R1.3 billion over two years is a fraction of government’s total expense budget of R1.25 trillion. At best it will make a rounding difference. Surely there is much more room for savings. An efficient anti-corruption campaign could potentially yield a lot more. This would however require a political will, which is yet to be demonstrated.

Public wage hike

What was very interesting was Nene’s resolute message that government cannot afford any above-inflation wage hikes in the public sector. People are not too optimistic that this will happen, as government is in many ways being held hostage by trade unions. Cosatu will surely scoff at this noble “6%-is-max” notion, as double-digit increases have become the norm.

Nene’s warning that any above inflation wage hikes must be accompanied by productivity increases is also ironic. This is exactly the same argument put forward by the private sector during all wage negotiations.

 Economic growth

The only sustainable remedy to government fiscal challenges, as Nene so eloquently described it, is to accelerate economic growth. South Africa needs growth of at least 5% and it is virtually inconceivable that we will see this rate within the next five years.

Nene partly attributed the downward revision of the growth forecast to 1.4% to the weaker global environment all around the world. He also cites obstacles in South Africa such as energy constraints, labour market disruptions, skills shortages, administrative shortcomings and difficulties in industrial transformation.

It was a short MTBPS speech - maybe the shortest in recent history - but there must be more public reflection of what needs to be done to accelerate economic growth. We wish Nene all the luck in the world for the preparation of the 2015 budget. It will probably be the most difficult one since 1994.

Source: Moneyweb


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