Idasa Comments on the 2013/4 Budget

Thursday, 28 February, 2013 - 12:01

The 2013 Budget, like budget policy documents in 2012, provides a stark, honest assessment of the risks still facing the South African economy and budget

The 2013 Budget, like budget policy documents in 2012, provides a stark, honest assessment of the risks still facing the South African economy and budget. The global economy has not really recovered, and economic growth in South Africa and amongst our main trading partners remains volatile and mediocre.

It is in fact likely that the global economy is entering a longer-term, fundamental adjustment, rather than simply a pronounced trough in its cycle. This means, then, that there will be no silver bullets to be bought anywhere. Effective partnerships and value for money from public spending have to be the guiding principles going forward if South Africa is to create the needed jobs and establish a more effective developmental path.

Budget 2013 is realistic about this, and began to initiate the painful adjustments that will have to be made by trimming the budget by about R 10 billion. There will, no doubt, be robust debate about this and other future measures, and that is good in any democracy, but in my view no other options are available over the next three years. Even the conservative estimates of tax revenue for 2012/13 have not been attained, giving us an even larger deficit for this fiscal year (5.2%) than planned.

In general terms, what is required is simple and agreed on: we need to alter the quality of spending as well as the composition of spending, away from recurrent expenditure towards capital expenditure. We need to enhance the South African economy’s ability to innovate and be competitive. We need to enhance the impact of social spending to provide quality health services and to provide education and skills development services, and we need to provide economic and social infrastructure. If we get all this right, then we may yet generate that much-vaunted dream of a virtuous circle, kept spinning by an effective developmental state, where growth generates revenue and revenue, used well, generates more growth. After all, even with tax revenue under pressure, South Africa is a middle-income country with a budget in excess of 25% of its GDP: there are resources.

But we need to do all this better at a time when we don’t have the room to manoeuvre that we had pre-2008, and when, as Marikana and other events have demonstrated, our ability to establish and maintain effective multi-stakeholder partnerships is arguably weaker and certainly coming under greater pressure than over the preceding decade.
It is not clear, then, how we will succeed now, unless a greater urgency comes to feature in our words and actions. ‘Urgency’ is not a particularly useful analytical term to add to the economic vocabulary, but in many parts of the world we are seeing, more acutely than in recent memory, the close and potentially fractious interaction of politics and economics when societies come under severe resource pressure. It almost goes without saying that such fractiousness is likely to be particularly marked in highly unequal societies, such as South Africa’s.
It is therefore welcome and correct that both the Speech and the Budget Review emphasise the National Development Plan and the call that it makes to all South Africans to put their shoulder to the wheel. Welcome and correct, but the nitty-gritty is what will matter here. Tough debates will in fact shape the extent to which a hard budget constraint can be imposed at the same time as the impact of the budget is increased. Public sector wage increases is one such issue. The youth employment incentive is another, as is the National Health Insurance scheme. Currently, the NHI debate has gone slightly off-radar because its initial phases don’t have real tax or other financing implications. That will however change. It will also be interesting to see what comes of the major tax policy review mentioned by the Minister. Despite pre-budget speculation, no drastic tax measures, such as a larger ‘wealth tax’, were mentioned.

The 2013 Budget also reiterated a commitment to eliminating corruption, and the Minister was right to appeal to everyone in this regard. Aside from corruption, there are also the familiar institutional challenges associated with underspending, and it is hoped that continued progress will be made here.

South Africa’s medium-term expenditure framework has provided credibility and predictability to budgeting in the democratic era.  Budget 2013 is to be commended for clearly setting out the difficulties that lie ahead, and for beginning to make some of the adjustments to the aggregate ‘resource envelope’that will be required. It is, in that sense, perhaps best understood as the beginning of a bleak but necessary journey to a destination that will take some years to reach.

Len Verwey

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