Southern African Catholic Bishops’ Conference Comments on the 2010/11 Budget

Tuesday, 23 February, 2010 - 09:52

The budget tabled today by Finance Minister Pravin Gordhan was in all likelihood the last that will come in at under R1 trillion. The government will spend R907 billion in the coming financial year, due to the rise in inflation by plus 2 percent in each of the coming three years. We have come a long way, at least in expenditure terms – the 1996/7 budget was R157 billion, and ten years ago, in 2000/1, it was (only) R245 billion

The budget tabled today by Finance Minister Pravin Gordhan was in all likelihood the last that will come in at under R1 trillion. The government will spend R907 billion in the coming financial year, due to the rise in inflation by plus 2 percent in each of the coming three years. We have come a long way, at least in expenditure terms – the 1996/7 budget was R157 billion, and ten years ago, in 2000/1, it was (only) R245 billion.

Minister Gordhan spoke of a ‘new growth path’, the key aims of which would be to create jobs, reduce poverty, and promote economic growth; these constitute as it were a trinity of goals, each expressing in its own way a central thrust, the securing of a better life for all. This ‘new growth path’ also echoed something the Minister said early on in his speech: we must do things differently; we can’t carry on doing the same things and expect different (read: better) results.

There are seven facets to the new growth path. Reducing joblessness among young people; supporting labour intensive industries; raising the levels of domestic savings (thus reducing what has to be borrowed from abroad); improving the State’s performance, especially in education; reforming the labour market; keeping inflation low; and improving competitiveness and skills in the workplace.

All of these are worthy, of course, but just as the President’s State of the Nation address was widely criticised for being long on promises but short on detail, so it might be said of the budget speech that it lacked specificity. On the other hand, the Minister can at least point to the fact that his speech is but the merest synopsis of a great pile of documentation tabled simultaneously; and that anyone who wishes to examine the details will find them set out in the estimates of state expenditure.

Among the specific points that the Minister did deal with, perhaps the most interesting was the announcement of a scheme to promote the hiring of unemployed and unskilled youth by means of a subsidy to employers. This is in itself a welcome development, a public-private partnership of the kind often talked about but seldom concretised. But it also signalled a departure, a new way of doing things. In his long tenure as Finance Minister, Trevor Manuel was never keen on using tax incentives, apparently because of the potential for abuses. However, the youth employment subsidy is to operate through the tax system, which amounts in simple terms to an incentive. If it works it will hopefully not be the last.

There had been much speculation that the Minister would say something about a loosening of the inflation target band of 3-6 percent but, on the contrary, he was especially firm in his statement that the band would remain as is, and that the Reserve Bank would continue with a monetary policy aimed first and foremost at keeping inflation down. While this will win him no friends on the left (or among exporters) he did give an implicit nod to the concerns of the Congress of South African Trade Unions (COSATU) and others that the Reserve Bank is too much of a free agent. Gordhan referred more than once to the fact that he and the Bank’s governor would ‘consult regularly’; and he made a point of saying that the Bank needed to improve the way it communicated its policies and decisions to the public.

Very few people will complain about the lack of tax breaks for higher income earners; the R6.5 billion in income tax relief is correctly destined for lower earners. But all taxpayers should note the Minister’s candid reference to the possibility that taxes might have to be raised in coming years. What we are forced to borrow now will have to be paid back sooner or later; and if the tax base fails to expand, existing taxpayers will ultimately have to cough up.

The introduction of a carbon tax on all new vehicles that emit more than 120 grams of carbon per kilometre is another innovative measure, and one which will be regarded as overdue by many. It will hopefully contribute to greater environmental responsibility, and may be the first of many such taxes: the Minister clearly stated that environmental taxes would be ‘explored’.

The fact that it was not necessary to raise taxes in this budget despite the appalling economic conditions of the last financial year, and that our borrowing requirements remain low by international standards, is a tribute to the prudent, indeed conservative, management of revenue and expenditure by the government for the last 15 years. In this respect Minister Gordhan has stepped smoothly into the shoes of his much-admired predecessor; for all his talk of doing things differently, it appears that not much will change in the overall approach to the budget.

It remains necessary, though, to raise questions; the Minister himself would be the first to accept accountability, as was shown by his clear statement that everything the government takes in as revenue comes ultimately from the tax payer. And the essential question must be: is the money really reaching the places and people that need it most? The ongoing service delivery protests are an indication that the answer to that question is uncertain, at least as far as the poor are concerned. Here is another: the growth in total expenditure from R245 billion in 2000/1 to R907 billion in 2010/11 amounts to some 370% - close to quadrupling. Over the same period, though, the old-age pension merely doubled, from R540 per month to today’s announcement of R1 080.

Mike Pothier
Research Coordinator
Southern African Catholic Bishop’s Conference

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