Finance Minister Pravin Gordhan’s final Budget speech before elections in May is a masterplan to please the masses.
On the eve of an election in the historically significant 20th year of South African democracy, Finance Minister Pravin Gordhan sang a carefully crafted song. It was not the voice of a sycophantic public servant; nor was it the voice of a self-congratulatory bureaucrat. Instead, he adopted the voice of the listener: the voice of the disgruntled electorate.
He spoke for those who had voted his party into power five years ago, and those who had recently publicly booed the president of the same.
A foray near the end of his speech best summed up his tone. “Puso e utlwa dillo tsa maAfrika Borwa! Ons het gehoor! Korrupsie moet gestop word! [We have heard you! Corruption must be stopped!] MaAfrika Borwa deserves better … We have heard your pleas!”
Gordhan has had to tread an incredibly fine line. He was to celebrate the achievements of the past 20 years. He was to laud the somewhat less effervescent accomplishments of the Zuma administration. He was to acknowledge the current pressing need for economic growth. Paradoxically, he was to simultaneously keep the purse strings tight. And most importantly, he was to let the voters know they had been heard. Their agitation was noted, and their government was not only hearing, but doing.
“Fellow South Africans, let me be frank with you – the world economy is still in difficulty, and global institutions are struggling to find their way,” he said.
After describing the “immense strides” made by the government since 1994, he said: “Yet we still have an immense set of tasks and challenges facing us. We cannot just muddle through the next decade.”
So what is the solution for a minister tasked with revitalising economic growth, while actually decreasing government expenditure from 33.2% of the gross domestic product (GDP) to 33%?
“The emphasis … falls on ensuring that expenditure is allocated efficiently, enhancing management, cutting waste and eliminating corruption,” said Gordhan.
In so doing, he would not only save costs, but appease an electorate disillusioned with ongoing corruption and at least R33-billion of misspent government funds last year.
The minister outlined four key ways in which this was to be done:
- Spending reviews, already underway by the national treasury and the department of performance monitoring and evaluation, are examining “programme performance and value-for-money”;
- The office of the auditor general has undertaken 27 forensic reviews over the past year, “leading to both criminal investigations and internal disciplinary action”;
- In an effort to combat waste, cost-containment instructions were issued in January. “Budgets for consultants, travel, accommodation and venue hire have been curtailed,” he said; and
- Regulations in the pipeline will entail stiffer reporting requirements for expenditure, revenue, borrowing and performance, overseen by the national treasury.
Procurement reforms will also be put in place to combat irregularities and corruption with the allocation of tenders and leases. They will aim to address problems like accommodation that is being paid for by government and not occupied, and unsubstantiated payments to landlords. It remains to be seen how quickly these measures will be rolled out as whether they will have any effect in the short and medium term.
Government spending halted, ‘growth’ prioritised
Following in the footsteps of other financial institutions, the treasury has reviewed its forecasted growth for this year’s GDP down to 2.7%.
The proposed budget relies on a revenue of R1.099-trillion, which is slightly higher than was projected at the medium term budget policy statement in October. Nevertheless, it drops from last year’s 29.2% of GDP to a flat 29%. Government’s overall projected expenditure will be R1.25-trillion, meaning that expenditure as a percentage of GDP will drop along with revenue. The budget deficit will dip to R153-billion; maintaining last year’s ratio at 4% of the GDP. This is expected to ease to 3.6% by next year, and to 2.8% by 2016/17. Net debt is also expected to stabilise at 45% of the GDP in the medium term.
According to the budget review, annual real growth in non-interest spending will average 1.9% over the next three years.
But of course, the growth-centric National Development Plan will form a platform for resource allocation over the medium term, says the budget review.
While Gordhan outlined measures intended to promote growth, these were all intended for the medium term as opposed to the immediate financial year. Highlights included:
- The allocation of R3.6-billion to much-discussed “special economic zones”, aimed at promoting value-added exports;
- R7-billion to be spent on conditional grants to small farmers in a new agricultural policy action plan;
- Manufacturing development incentives will be allocated R10.3-billion over the next three years; and
- Treats for the voters: tax breaks and grants.
While keeping the two-pronged rhetoric of lower government spending and economic growth alive, Gordhan also handed out a few treats where the voters were most likely to appreciate it.
Income tax thresholds were to be increased, meaning an overall R9.3-billion tax break for households. Similar relief was proposed for small businesses and entrepreneurs.
We ran Finance Minister Pravin Gordhan’s Budget speech through a word cloud generator to find out which words were most prominent this year.
Old age and disability grants will increase in April from R1 270 per month to R1 350 per month. This means old age grants will now demand R49.8-billion, a 12.4% increase from last year. Nothing, however, was expanded upon from last year’s elusive statement that the old-age grant means test would be phased out by 2016.
The foster care grant will increase from R800 to R830, and the child support grant will increase (albeit only slightly) from R300 to R310 in April, and R320 in October. Provincial welfare services are also seeing a bigger slice of the pie with an allocation of R15.4-billion, it will be a spending increase of 21% from last year.
Social protection (under which grants and welfare services fall) now constitutes R144.5-billion, an increase of 10.3% from last year.
The allocation for housing development increased by 18.9% to R34.8-billion.
In his speech, the minister highlighted that the National Student Financial Aid Scheme (NSFAS) would receive R19.4-billion over the next three years, no doubt in response to the fierce student protests demanding more assistance. Interestingly, vocational training (under which FET colleges fall), a previously emphasised part of the higher education budget, will see a decrease of 0.3% in spending from last year.
Social services, the umbrella under which education, health, social protection, housing and community amenities fall, remains the biggest item on government’s bill. With a total allocation of R744.2-billion, it sees a spending increase of 9.3% from last year, at least three percentage points higher than inflation. Considering this category oversees the concerns raised in almost all of the increasingly frequent and violent service deliveries held this year, Gordhan’s message to the voters was clear: “It is time for action and implementation. It is time to move South Africa forward to the next stage of our historic journey to more rapid growth, jobs and development – time to leave behind poverty, joblessness and inequality!”