Minister Pravin Gordhan and his team at National Treasury should be praised for striking the correct fiscal balance in this year’s budget. Gordhan understands that fiscal rectitude is necessary for the growth and transformation of South Africa’s economy.

Harder to shift profits

To maintain the fiscal balance, Gordhan will contain government spending and will raise the tax rates to be paid by well-off South Africans. He is also planning to sign-up SA to international instruments which will make it harder for South African-based businesses to shift their profits off-shore in order to avoid paying taxes in South Africa.

Raise taxes at top end

It is widely understood that there are limits to how far taxes can be raised, but in current circumstances it is preferable that Gordhan has chosen to raise taxes at the top end, rather than to increase borrowing. Increased borrowing would raise the very real risk of SA falling into a debt-trap, which would severely harm the prospects of our children and grandchildren.

Improving the structure

Gordhan’s fiscal rectitude will enable SA to retain a degree of policy sovereignty. He knows that if SA falls more deeply into debt, the country’s ability to determine its own policy direction will be compromised. Such a loss of policy sovereignty would limit the scope for interventions aimed at fundamentally improving the structure of the economy.

Sound principles

Gordhan has sent a clear message that government’s programme of radical economic transformation must be based on sound economic and constitutional principles. He understands that policies not based on sound economic and constitutional principles will be doomed to failure.

Ensure economic transformation

Given SA’s ongoing problem of economic and social exclusion, Gordhan seeks to use the budget to ensure that economic transformation programmes have the widest possible impact and touch the lives of millions of poor South Africans, and do not just enrich a few.

He reminded SA that about two-thirds of the budget each year, that is, in this year’s budget about R1-trillion out of R1-5-trillion total expenditure, is used for the realisation of social rights, such as, education, healthcare, social security, housing and water and sanitation services.

It is also hoped that the problems that have plagued the under-resourced higher education sector for the past few years will now be well on the way to being resolved, as government has allocated considerable additional resources to this sector.

Rate of growth

Gordhan projects that the rate of economic growth in SA will rise from 0.5% in 2016 to 1.3% in 2017. Although this rate of growth is disappointingly low, South Africans can take heart from the fact that some of the main inhibitors of growth that have haunted the South African economy over the past few years have receded, such as, low commodity prices, drought, industrial unrest and unreliable electricity supply.

Improvements in structure

Many would have praised Gordhan if he had used the opportunity of this year’s budget to announce some specific targets aimed at improvements in the structure of SA’s economy, which remains one of the most unequal in the world. For example, Gordhan could have announced a numerical target for a reduction in income inequality or a target for increased employment levels, especially for young people.

Growth enhancing interventions

The transformation of SA’s economy will only be possible if SA can lift its rate of economic growth and investment. It is heartening that Gordhan announced that a number of important growth enhancing interventions, such as, bringing certainty to mining regulation, implementing the switch from analogue to digital television, continuing the independent power producer programme, streamlining investment approval processes and safeguarding South Africa’s investment-grade rating.

The right balance

Furthermore, SA will benefit if steps are taken to curtail overcharging and anti-competitive conduct by dominant entities. Gordhan has made it clear that anti-competitive and monopolistic practices by the banks and other large entities in the private and public sectors will not be tolerated.

Gordhan’s budget is a good one. It strikes the right balance – asking the rich to contribute a little more, while promising that government will re-double its commitment to using public resources more effectively to improve the lives of the poor and to transform South African into a more equitable society.

South Africans will take heart from Gordhan’s budget and will hope that the budget enjoys the full support of Cabinet and government in general.

Dr Kenneth Creamer
Economist, School of Economic and Business Sciences, Wits University



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