2013 Budget Projections

The State of the Nation address has set the background-tone against which the 2013/14 Budget will be set. South Africa’s economic growth is expected to slow to about 2.6 per cent in 2012 compared with 3.5 per cent growth attained in 2011. The projection

Here at home those challenges still remain in the mining and agricultural sectors where tensions are still simmering under the surface. Also, consumers are coming under increasing pressure from higher prices on necessities like petrol and electricity amongst other things. In theory, marginal improvement in the outlook for 2013 means somewhat higher revenue streams for government to meet its obligations. However, in reality the finance minister has limited room to move in terms of expenditure allocation and possible tax relief.

Infrastructure expenditure

Most of the investment expenditure we have seen in SA during and post-recession has been driven by general government (which includes public corporations) infrastructure expenditure, particularly public corporations like Eskom. Private companies have been sitting on the side-lines with substantial cash reserves; they are not spending on capital projects partly due to uncertainty of the solidness of the economic recovery and policy uncertainty. Whilst the Mangaung conference has laid to rest any doubts regarding nationalisation, the mooted mining tax still creates some level of uncertainty. Government is still expected to continue with the infrastructure drive and the minister should give more detail to this during the Budget Speech.

Job Creation

One of the major differences between last year’s State of the Nation Address and this year’s one, is that this year, the National Development Plan (NDP) has been officially adopted at the Mangaung conference. Very little detail was provided there and we expect the minister to put flesh to the framework on how this is going to be put to work on a practical basis. It’s important to get the economy growing to the 5 per cent needed to create more employment. The job fund that was announced in last year’s budget has done little to dent on overall unemployment and during 2012 the SA economy has added only 80 000 jobs; way down from the target level of 500 000 year. Since the end of the recession South Africa has gained a total of 602 000 jobs; we haven’t recovered the million or so jobs lost during the recession.

Current expenditure

As always government will be allocating expenditure to various departments in order to meet its service delivery commitments. One of the largest expenditure items for government is its salary bill. The minister already warned last year that it was around 40% of non-interest government expenditure. We know part of the employment created in the formal sector over 2012 came from the public sector; no doubt this has increased the public sector salary bill. Government departments need to bring in some efficiency in terms of the way they do business because having more people does not necessarily lead to an increase in output.

Over the past few years the number of social grant recipients has increased substantially and currently sits at about three times the number of tax payers who form SA’s tax base. This has gone a long way toward easing poverty, but the sustainability of the program depends on government revenue streams and how well the economy is doing. Government has committed to a phased increase of the number of recipients; with the current economic outlook this can only happen at the expense of a smaller annual increase on the monetary value of the grant.

Tax relief

It’s difficult to see a meaningful allocation towards personal income tax relief with the constraint of limited increase in tax revenue; given the other expenditures that government has to undertake the only possibility is lowering the tax burden of lower and middle income groups with the higher income groups just being compensated for fiscal drag.

Policy changes

It’s unlikely that there will be major policy announcements; we just expect more details regarding the implementation of the NDP. Hopefully the minister will also provide clarity on the funding model of the National Health Insurance.