South Africa: Measured Budget Statement In Advance Of Elections – March 2014
British High Commission Pretoria
A restrained budget predicts South African economy will grow by 2.7% in 2014, with narrowed budget deficit and higher revenues. A commitment to income tax relief for low to middle earners provides the main political offering ahead of elections, but this is counter-balanced by an increase to the fuel levy. Generally positive SA reception for Gordhan’s announcements despite lack of new measures to promote growth.
On 26 February, Finance Minister Pravin Gordhan announced South Africa’s 2014 Budget to Parliament: the last before elections in May Gordhan’s main pitch was that this Budget would lay the foundation for the necessary reforms to accelerate growth, create jobs and build a more equal South Africa.
2. Gordhan noted that whilst the global economic picture remained unsteady, some advanced economies had turned a corner. He forecast that the South African economy would grow in 2014 by 2.7% with forecasted growth of 3.2% and 3.5% for 2015 and 2016. He gave no specific commitments in the budget to new growth measures. Inflation is expected to reach 6.2%, breaching the 6% target.
Twin Deficits continue
South Africa’s budget and current account deficits have caused concern during Gordhan’s tenure. He claimed this week that higher than expected revenue (partly as a result of more efficient revenue collection) had helped to reduce the budget deficit to 4%, lower than the 4.1% forecast in the mid-term Budget. Gordhan also claimed the Budget deficit would narrow to 2.8% by 2016/17. But the current account was likely to run a deficit of 5.8% over the medium term.
Government debt is projected to increase to 48.3% of GDP by 2017 from 45.8% this year, with spending having soared 40% over the past 5 years. Gordhan vowed that the state would take a firm grip over public spending in the next three years. At a media briefing ahead of his statement Gordhan insisted that the state’s “grip on spending" was very firm.
Unsurprisingly, Gordhan highlighted the risks posed by the weak rand to the government’s infrastructure plans. The price of capital goods had risen, and borrowing costs were higher as a result. The volatile rand “reinforced the need to moderate public expenditure and lower the budget deficit.”
The main surprise was the better than expected revenue figures. No significant tax changes were announced. Instead, personal income tax relief was announced for low and middle income earners. However, Gordhan also announced an inflation increase in the fuel levy.
Gordhan’s restraint, along with the vow to grip public spending, has generally been welcomed by economic commentators, business and much of the political class.
The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.