Overall impression: No change in game plan
In the lead up to the MTBS it was speculated that there may be some indication of a change in game plan. This has not happened! In particular, Government remains committed to the objectives of the NDP and sound fiscal discipline. No massive new State expenditures or shocks have been announced. All is on track.
THE GOOD NEWS
Government predicts that it will meet the 2013/14 deficit target as presented in the 2013 Budget Review.
Expected gross tax revenue for 2013/14 has been revised down marginally by R3 billion to R895 billion.
There was no indication of taxation increases or new taxes for 2014.
- State Expenditure
The MTBPS proposes a national appropriation of R1.1 trillion in 2014/15, R1.2 trillion in 2015/16 and R1.3 trillion in 2016/17. The numbers are not materially different from previous estimates.
Growth in expenditure represents expenditure at 2.2 per cent in real terms within a clear expenditure ceiling.
R10 billion in spending has been reprioritised.
- The national deficit
The budget deficit will narrow from 4.2 per cent of GDP in the current year to 3 per cent in 2016/17.
Just under 10 per cent of the total state expenditure, or R110 in 2014/15, will be spent on debt service costs.
Consumer price inflation is expected to average 5.9 per cent in 2013, and to remain within the 3 to 6 per cent target band next year.
- The National Development Plan
Government’s commitment to the NDP could not be more clear:
“Honourable Speaker, the central message of the National Development Plan is clear – To accelerate progress, deepen democracy and build a more inclusive society, South Africa must translate political emancipation into economic well being for all. It is up to all South Africans to fix the future, starting today. This MTBPS demonstrates government’s resolve to implement the NDP..”
- Commitment to cutting costs and abuse
Some said there would be nothing new in the 2013 MTBF speech. But there is one move that taxpayers will welcome and cheer in approval.
Cabinet has decided to take a number of initiatives which will apply both to members of Cabinet and to officials in national, provincial and local government. This will include state entities and state-owned enterprises.
The Executive, including provincial and municipal Executives, Cabinet has of its own accord has decided the following:
The cost limits for official cars will be standardized. Bulk purchasing will be used to reduce costs. Security features will be a consideration. There will be no compensation for use of personal cars.
Business Class only for Ministers. Assistants to Ministers will be limited to two. Direct routes will be used. Number of officials to be kept to a minimum.
Ministers awaiting allocation of houses will be accommodated in rented apartments not hotels. New refurbishment guidelines for limiting costs will be developed. No new credit cards to be issued and existing ones to be cancelled immediately. Ministers awaiting allocation of houses will be accommodated in rented apartments not hotels New refurbishment guidelines for limiting costs will be developed.
No new credit cards to be issued and existing ones to be cancelled immediately.
A new approach to limiting approach to reducing costs and eliminating wasteful expenditure in the rest of government will focus on six areas over the period ahead:
1. Consultancy expenditure will be limited by better contract management and stricter control of consultancy fees. Each government entity to develop a consultancy reduction plan.
2. No credit cards.
3. Travel and related costs. Hiring of cars to be restricted to B Class except for special instances such as rural travel. The number of officials travelling to Cape Town offices will be limited. The Leader of Government Business will engage with Parliament on measures to reduce costs, such as the size of delegations appearing before parliamentary committees, and the cost implications of the current Pretoria-Cape Town arrangements.
4. Advertising. Guidelines to limit non-essential costs and for better use of GCIS facilities will be developed.
5. Catering and event costs. Guidelines will be developed for reducing event costs, including better use of government facilities rather than outside venues for meetings. No public funds to be used for purchase of alcohol. The entertainment allowance will be limited to R2 000.
6. Government offices. Steps are under way to reduce long term office accommodation and government housing costs and make further savings from electricity demand management measures in government buildings.
One can only applaud these new measures. Taxpayer anger driven by blatant expenditure wastage has far to long been a factor in South Africa.
THE BAD NEWS
The MTBF has openly acknowledged the fundamental problems identified above:-
- Growth is too slow.
Global economic activity remains subdued. In the euro area, which South Africa’s main trading partner, GDP growth of 1 per cent is expected next year, after negative growth during much of 2012 and 2013. The IMF has revised down the 2013 growth outlook for developing countries from 5 per cent to 4.5 per cent.
As the United States tapers its quantitative easing programme and starts to raise interest rates, this will impact on our debt costs and might cause further volatility of the rand.
South Africa now expects growth of about 2.1 per cent in the South African economy for 2013/14. (This is below the original forecast of 2,7), rising to 3.5 per cent (previously forecast 4,1% by 2016.
- Government expenditure substantially exceeds revenue.
Since 2008 South Africa has issued more than R1 trillion in debt. (That is equivalent to more than a years total tax collections.)
Government remains committed to macroeconomic stability, supported by prudent fiscal management and sound monetary policy. The risks posed by the deficit on our current account are acknowledged and considered manageable. The long term requires fundamental change to the structure of our economy.
- Imports considerably more than we export.
A trade deficit of 2.6 per cent of GDP was recorded in the first half of 2013, contributing to a deterioration in the current account of the balance of payments to about 6 per cent of GDP.
- Unemployment is to high
Muted economic growth has translated into limited gains in job creation. The quarterly labour force survey indicates an increase in employment of about 275 000 in the year to July, but formal non-agricultural employment growth has been slow.
- Contingency reserves
The budget framework includes a contingency reserve, which is R3 billion next year, R6 billion in 2015/16 and R18 billion in 2016/17. This allows for unforeseeable events, and future policy considerations. This may appear substantial but in the context of R1,1 trillion per annum state expenditure it leaves little room for disasters.
- Overall conclusion
Pravin Gordhan had very little space to work in delivering the 2013 MTPS. But the effect is impressive:-
- He has not bowed to political pressure to abandon the NDP. Indeed there is absolutely no evidence of trying to buy votes in the 2014 elections.
- The National Budget is on track with the associated problems recognized and dealt with.
- Sound fiscal strategy has been maintained.
- Concrete steps have commenced to tackle wastage of taxpayers money.
This is good news for South Africa!