The Finance Minister’s Medium Term Budget Policy Statement (MTBPS) was overshadowed by the student activism outside Parliament as the #FeesMustFall campaign gained momentum. We have withheld this Response pending further details of how President Jacob Zuma’s assurance that there would be zero increase in fees next year would be financed, as this would impact on the MTBPS. To date however, no details have been revealed.
In general, Minister Nhlanhla Nene, confirmed the gloomy outlook. He indicated that South Africa’s economy would grow by only about 1.5 percent this year, compared with the more optimistic two percent that undergirded the February 2015 Budget. The growth forecast for next year was 1.7 percent. He also indicated that tax revenues are down and are likely to continue to decrease over the next three year period, effectively withdrawing R35 billion from the fiscus. He confirmed that load shedding and uncertain electricity supplies continue to be the biggest drag on economic growth, costing the country roughly one percentage point of annual gross domestic product growth. Minister Nene said: ‘Electricity constraints continue to limit output and business investment has fallen.’
All of this has caused many commentators to raise questions about whether the Treasury will be able to meet its goal of stabilising gross debt/gross domestic product (GDP) ratio to about 50 percent. The challenge will be compounded by the commitment to establish the National Health Insurance scheme and the costs of promoting nuclear power generation. The spectre of increased Value Added Tax (VAT) also raised alarm bells amongst many.
Economist a reacting to the Minister’s statement warned that expenditure cuts, containing the size of the civil service, and achieving a job creating economy, are key aspects of redressing South Africa’s economic woes. With regard to the civil service, the Minister indicated that its expansion, as well as the replacement of certain posts, had been frozen. Opposition parties were particularly critical of the failure to give hope to the unemployed. In the first half of 2015, 76 000 jobs were lost in the formal sector. There were an estimated 659 000 new entrants in to the job market at the beginning of 2015.
The outlook for future entrants is very bleak: the Minister spoke of 2.43 million discouraged work seekers. Nene confirmed that the government’s priorities remained education, health and social protection which together accounted for 43 percent of the budget allocation.
In this regard it is worth noting that Basic Education gets an 8.2 percent increase, with early learning development and text book delivery being particularly targeted. The increase is meant to ensure that an additional 127 000 children have access to early learning programmes.
Social development receives an 8.3 percent increase, amounting to R13 billion, aimed at covering the estimated increase in the numbers of grant recipients. The indication is that there will be about 18.1 million such recipients by 2018. The health budget is also increased by 8.3 percent, and will reach R178 billion by 2018, with special emphasis on the continued support of anti-retroviral programmes (from which an estimated three million people are benefiting) and the national health insurance scheme.
Public employment programmes like the Expanded Public Works Programme will receive R37 billion over the next three years to create a hoped - for six million short term jobs, and to create a community work programme by 2017.
It is also worth noting that, given the many areas of contestation in the local government are and, municipalities will receive an additional R6 billion to cover free services to low income households, as well as to help settle their electricity bills with ESKOM.
Overall, national departments are allocated 47 percent of the budget, provinces 43 percent and municipalities nine percent.
In the light of these many challenges, the Minister looks to have a difficult task before him in the years ahead, continuing his balancing act between spending and revenue generation, to ensure both the social cohesion which rests on the programmes which the government has highlighted, but also the financial sustainability which is the very bedrock of progress and the guarantor of a better life for all.
- Peter John Pearson is a director at the Southern African Catholic Bishops Conference.
Photo Courtesy: My Broadband.