Nene also warned parliament that fiscal consolidation could no longer be postponed. He also announcing a R25-billion lowering of the expenditure ceiling and said he needs to raise an additional R27-billion through higher taxes in the coming two years.
He outlined a five-part ‘fiscal package’ to narrow the deficit and stabilise debt, which included:
• Reducing growth in spending, by lowering the 2014 Budget expenditure ceiling by R25-billion over the next two years.
• Adjusting tax policy from the 2015 Budget to generate additional revenue of at least R27-billion over the next two years.
• Strengthening Budget preparation to emphasise longer-term planning and efficient resource allocation.
• Freezing government personnel headcounts and reviewing funded vacancies.
• And adopting a deficit-neutral approach to financing State-owned companies.
To facilitate a “structural increase in revenues” tax policy and administrative reforms would be pursued to raise at least R12-billion in 2015/16, R15-billion in 2016/17 and R17-billion in 2017/18.
But we would have to wait for his budget speech in February for details.
Other key points:
• To try and lead us away from darkness, Eskom will receive a direct allocation of R25bn from the sale of non-strategic state assets. This will not carry any direct costs to taxpayers, and any help to state-owned companies will be budget-deficit neutral. Any capitalisation will not widen the budget deficit.
• National government’s net debt will stabilise at 45.9% of GDP in 2017/18 (R2.4trn), declining thereafter. Debt service costs will grow at 9.3% per year – faster than the budget as a whole – reaching about R150bn in 2017/18.
• Economic growth is projected at 1.4% this year (in line with other forecasts), 2.5% next year and 2.8% in 2016, and inflation at around 6%. Food inflation is expected to recede from current levels thanks to buoyant global and domestic production. SA’s growth figures are lower than both those forecast by the International Monetary Fund for Africa (between 5% and 6%) and emerging markets in general (between 4.4% and 5.2%).
• Over the medium term there will be increased exploration for on- and offshore oil and gas, by developing an exploratory drilling plan and legislation.
• The focus on development of cities will be through a new approach to local government infrastructure financing.
• African Bank: Government has provided a R7bn backstop to the SA Reserve Bank (Sarb) in line with international practice, but it is unlikely that Sarb will draw on this facility.
• The government’s total wage bill will be R440bn this year, expected to rise to R470bn next year (Eish!)
• About R500bn of social protection (pensions and social grants) will be paid out over the three-year period of the MTBPS.
Nene acknowledged that South Africa’s economic performance had deteriorated the past several years and that GDP growth was forecast to improve only over the medium term as infrastructure constraints eased, private investment recovered and exports grew.
Faster economic growth remained a core policy objective, notwithstanding a far less expansionary Budget policy and Nene said growth could be supported by sustaining high levels of public investment, reducing consumption expenditure and expanding exports on the back of a more competitive real exchange rate.
