Still a Rocky Road Ahead.
It was already clear in Pravin Gordhan’s first medium-term budget policy statement in October 2009 that a substantial adjustment is needed to be made to public finances over the next few years as economic recovery will be slow.
With recovery of tax revenue anticipated to be slow and an increased deficit from 23% of GDP to 40% over the next three years; doing more with less, and how to actually achieve this, should therefore be a key aspect of budget debates in the next weeks and months. Budget 2010 suggests that the 2009 MTBPS adjustments were realistic and accurate. Virtually all allocations for the 2010 Budget will only stay the same or decline from April 2011 onward.
The 2010 Budget stresses the scarcity of recourses and presents a muted increase in government sending in particular aimed at addressing unemployment. The wage subsidy for first time workers and the proposed Industrial Policy Action Plan are two proposed interventions, and together with the prioritisation of education are hoped to better position the economy for future growth.
Small real increases from 2009/2010 to 2010/11, reflecting some of the stated budget priorities, can be seen for Health, Education and Social Protection, as well as for Housing and Community Amenities and Public Order and Safety. The real increases in allocations to Social Protection reflect increases in eligible beneficiaries as a result of more poverty stemming from recent job losses and the extension of age-eligibility to 18. Personal income tax relief worth an estimated R6.5 billion and an increase in so called “sin taxes” and fuel levies will be further cause for both celebration and frustration.
The emphasis on cutting out the ‘bells and whistles’ in departments, and in reducing corruption, as well as on enhancing efficiency and service delivery, are a welcome shift in emphasis away from allocations only.
The 2010 Budget is largely successful in the realism of its growth and tax revenue assumptions. In the priorities it allocates additional resources to, in the clarity it provided on questions such as possible changes to the monetary policy framework as well as the calling for multi-stakeholder involvement, all of which will be particularly essential going forward.
It is possible that the October 2010 MTBPS will in fact provide a further upward adjustment of growth and revenue estimates. However, the likelihood is that we have entered a period of comparative austerity which will require changes in the way government departments conceive of what they do, and which require effective oversight if allocations are to achieve what they are intended for.
While Parliament is developing the institutional capacity to utilize its powers to amend the budget, as required by the new legislation passed in 2009, it will be important that civil society seize the opportunity to influence the budget through its engagement with Parliament and legislatures.
PIMS Budget Unit