Historical resonance and current economic realities should converge in 2010 budget vote
The 2010 budget speech will take place in a context that is alive with historical resonance
February 2010 marks the anniversary of two decades of significant landmarks that include the announcement of the release of Nelson Mandela by the Nationalist government of 1999, the actual release of the world-famous political prisoner on 11 February 2001 (a week-and-a half after the announcement) the beginnings of an extraordinary reconciliation project within South Africa’s peoples and the coincidental delivery of the first formal State of the Nation Address by President Jacob Zuma in February 2010.
These developments usefully need a 20-year perspective to appreciate where we are as a country, the extent to which we have survived the 2009 economic storm and the view ahead likely to be reflected upon by our minister of finance, Pravin Gordhan, on 17 February 2010, in his maiden budget speech.
Presently, it is almost impossible to ignore the fragile, but palpable, emerging business optimism following three quarters of negative economic development, which in turn followed thirty-three consecutive quarters of growth since September 1999 – the equivalent of just over 12, percent of compounded economic growth since that time - and the concerted efforts of the African National Congress government to undo the effects of the massive total domestic debt that it inherited in 1994 and which reached a peak of 47,6 percent of gross domestic product (GDP) in the 1995/6 fiscal year. Under ANC stewardship, the domestic debt was reduced to 23, 2 percent by 2008/9.
Looking forward, much has been said and speculated upon about how SA has survived the global turmoil in light of exchange controls, the upcoming spin-offs from the 2010 World Cup football tournament, the historically necessary massive investment in infrastructure projects and consistent investment in education and health by government (some of its identified investment priorities).
The historical and upcoming significance of the moment is not likely to be lost on the minister of finance, from whom we can expect some references to this momentous month in his 2010 budget speech to contextualise the announcements he will make. In addition, we are likely to see a celebration of the fact that SA dispatched billions of rand to address the debt faced by the 1994 government, which in turn created the fiscal space to negotiate the downturn and position the country on the road to economic recovery. Ironically, the space created means that the SA economy enters the next fiscal year in the back of debt amounting to 27 percent of GDP by government’s own admission.
A key strength of the SA recovery has been the prudent fiscal stance adopted since 1994. It has become clear that priorities such as education, health and social development have emerged as key areas of concern that have been consistently addressed through increased fiscal allocations. Indeed, such caution has seen responsible investment in infrastructure - a simultaneous driver of domestic economic growth and a consequent stimulus for foreign investment – instead of conspicuous government consumption, as much as there is criticism of some of government’s spend on perceived priorities. In addition, there has been no rush for government bailouts - in ailing SA sectors such as automotive and clothing, for example - to counteract the recession. Simultaneously, however, there has been ongoing financial commitment to public works infrastructure development –recently increased from R760-billion to R846-billion by 2014, as announced by President Jacob Zuma – in an effort to shore up the economy and counteract the effects of the recession.
While much has been made of the conservative projections by government on economic growth – the South African Reserve Bank projects around 2% in this area for the upcoming fiscal period, following a spurt of growth that averaged as high as 5%, - various players in the economy are more optimistic.
The balancing act required between social development and macroeconomic growth remains a consistent tension and will become exacerbated in the light of a survived downturn and the imperative to create business growth over the longer term, while making significant gains in service delivery over the shorter term.
But what are the government announcements likely to be? Clear indications of government spending have already been made clear: creating meaningful work, enhancing the delivery of quality education, improving the South African public health system, focusing on rural development and addressing crime and corruption formed the cornerstones of Gordhan’s medium term budget policy statement of October 2009.
There are, however, other priorities, as announced by Zuma in his Sate of the Nation Address.
Some of these include the budget deficit – to address the difference between tax revenue and expenditure - the SA social security regime and the preservation of the natural environment in a responsible manner.
The budget deficit remains the key issue facing the minister of finance and addressing this is his key challenge. From a relatively small proportion of tax contributors that have been efficiently tapped into by the South African Revenue Service, more needs to be derived. This excludes the shrinking corporate and Value-Added Tax base – both facing increasing constraints because of consumer caution in spending and depressed demand. The usual ‘sin taxes’ are likely to go up, but the stable tax base comprising Company Tax, VAT and personal taxes seem to have ironically represented finite resources in the face of SARS efficiencies. Taxation, then - the past stomping-ground of increasing- efficiencies of the new minister - represents an area of narrow scope for continued growing state income generation through hyper- efficiencies.
Infrastructure investment has long been a government priority, but is dependent on the health of the fiscus at national, provincial and local levels. While there are arguments for soft and hard infrastructure priorities, the National Health Insurance System should emerge as a priority. Although the devil languishes in the detail of the allocation of funding and the mechanics of roll-out, there have been a number of clear indications that this remains a government priority. It forms part of government’s intent to address the inequalities of SA society and a certain allocation should be made to it – even if it is only for the purpose of researching the administration and implementation of the scheme. While it was not an issue explicitly addressed in the State of the Nation speech, the financial implications of the idea might compel the finance minister to address it. There are also a number of indications that the minister of finance will address issues affecting the environment. Apart from the targets announced by President Zuma at Copenhagen, in December 2009, that targets have been set for the reduction of carbon emissions, announcements have come from government affecting the automobile sector and indicate a seriousness of intent to address this matter. This was well in advance of SA’s Copenhagen commitments. It is likely that the minister of finance will not await the White Paper on expected to be released during the middle of this year to address the matter in greater detail.
In conclusion, we have to turn to the effects of the 2010 World Cup to be held in South Africa. While 2010 might bring short-term spending, it is the long-term benefits that need to be appreciated. Developing infrastructure, beyond stadia, transport, policing and other long-term investment has been the goal of the 2010 football effort. While all of the latter are of great significance, addressing the post-2010 infrastructure environment, physical and economic, will be a key challenge faced in the 2010 budget vote delivered by Gordhan.
