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Easy come, easy go! The finance minister has big plans for your tax revenue

28 February 2011 Gareth Stokes
Gareth Stokes, FAnews Online Editor

Gareth Stokes, FAnews Online Editor

After catching snatches of finance minister Pravin Gordhan’s 2011 Budget Speech I settled down for a careful study of the 46-page document. I wanted to get a better feel for the direction South Africa would take over the next three years. My first observa

The 2011/12 budget focuses on jobs, social expenditure, infrastructure and economic growth within the framework of the recently announced New Growth Plan. “This Budget, mister President, reflects the collective determination of the government to address with energy the challenges of creating jobs, reducing poverty, building infrastructure and expanding our economy,” said Gordhan, setting the tone for the remainder of his speech. South Africa’s growth prospects were outlined very early in the game. He congratulated the Reserve Bank for its continued efforts to keep inflation intact. But he lamented the real threat posed to the economy from rampant food and oil prices…

The jobs creation debate and other challenges

If government hopes to achieve President Jacob Zuma’s ambitious jobs promise the economy will have to fire on all cylinders. I struggled to balance the equation… Economists say we need around 7% per annum growth to come close to delivering five million jobs by 2020 – Gordhan says real GDP growth was 2.8% last year and will top 3.4%, 4.1% and 4.4% over the next three. He said we could expect steady employment gains of around 2% per annum, suggesting he doesn’t believe the President’s promise. A 2% annual compound growth in employment – starting with the 13.132 million employees recognised by the Q4 2010 Labour Force Survey – delivers 2.85 million jobs by year-end 2020! I guess the ruling party expects the massive job creation funding initiatives announced this year to speed things up.

As a first step R9 billion has been set aside to create a jobs fund to co-finance innovative public and private-sector employment projects. It sounds like a good initiative, though I’d prefer a focus on private over public sector projects, and would place a high emphasis on management and accountability of said funds. But the plan to throw another R14 billion at education and training colleges PLUS R20 billion on Sector Education and Training Authorities (Setas) PLUS R5 billion to the National Skills Fund leaves much to be desired. Spending on education is great, but these institutions and funds aren’t producing the desired result. South Africa is shoving students and apprentices through a broken production line. They’re not arriving with the appropriate level of skills and largely leaving the system as poorly trained as when they showed up. We have to fix the system before throwing money at it!

Another job creation strategy which is harmful to South Africa is the expanded public works program, which could just as well be called the “broom, wheelbarrow and spade in hand” program! Government has allocated another R73 billion over the next three years to create the most indecent jobs out there… These jobs aren’t sustainable – and they’re costing the country billions due to the use of half-trained individuals to make critical repairs to roads and other infrastructure... A better option is the R20 billion in tax incentives for manufacturing investment with a focus on job-creation. The R5 billion youth employment subsidy, as set out in a discussion paper, for further consideration in Parliament and at Nedlac is also interesting, though labour will probably shoot down the proposal.

Spend, spend, and spend!

We welcomed government’s prudent stance on state expenditure and their continued focus on manageable levels of state debt. “To ensure that our spending on schools, hospitals and roads is not crowded out by an ever-rising interest burden, government debt needs to be managed in a sustainable fashion,” said Gordhan. The broad overview of how tax revenue would be dished out in 2011/12 was as follows… Total expenditure from the National Revenue Fund is expected to reach R889 billion, with R77 billion earmarked for debt servicing and R4 billion tucked away in a contingency reserve fund. This leaves R808 billion to be shared between the national, provincial and local governments. National departments are allocated 47% of the total, provinces 44% and municipalities just under 9%.

As we drill down to the specifics things get more interesting. Total spending on public health services has increased strongly over the past three years, from R63 billion in 2007/08 to the R113 billion projected for 2011/12. Gordhan said an amount of R8 billion would be spent to “lay the foundations for National Health Insurance (NHI).” Its coming ladies and gentleman, to a hospital or clinic near you . The shock number from the expenditure side of things is that education takes up 21% of non-interest allocations, the biggest slice of the cake. And it’s time for South Africa to take a long hard look at what we achieve with these funds! Total expenditure on public order and safety functions will amount to R91 billion, rising to R105 billion in 2013/14.

Another pro-poor budget

“For the poor, the Budget continues to expand spending on housing, rural development, better community services and social assistance grants for the elderly, the disabled and children in need,” says Gordhan. The social protection budget – referred to as the practical expression of a caring society – will top R147 billion in 2011/12, rising to R172 billion by 2013/14. This includes income support to poor households and the phased extension of the child support grant to older children. Government is already dishing out assistance to 15 million citizens (or more than a quarter of the population!)

At present we don’t think government is getting the balance between welfare and development right. If anything the burden on the state is swelling. Government has promised to upgrade 400 000 homes in informal settlements by 2014 and will spend a whopping R122 billion on housing, water and community amenities in 2011/12, rising to R138 billion in 2013/14.

Editor’s thoughts: As I sat down to assess Gordhan’s 2011 Budget Speech I couldn’t help but wonder whether the ANC Youth League would welcome its content. The word “nationalise” wasn’t used at all – and there was little suggestion the rich would be stripped of their land or assets to placate the poor. It seems the ANC policymakers in government are steadily losing touch with the bulk of their electorate. But I digress… Instead I’ll welcome your comments on the growing disconnect between education expenditure and outcomes in the South African schooling system. Add your comment below, or send it to gareth@fanews.co.za

Comments

Added by Darius, 28 Feb 2011
Apart from the education system, which to my mind is throwing good (tax money) after bad (a broken system) how do government grow employment levels by employing more and more unskilled people to do skilled work? I believe that government must stay away from job creation – for heavens sake – all government entities are already over-employed! There is not a single government department where you don’t have at least 30% over-employment. Go wherever you like and you will find employees behind counters that are having social conversations amongst themselves, sitting around, killing time by going “super-slomo” – and the public must wait – doesn’t matter the length of the cue, there is only one pace – Africa style. When government tries to create jobs there are no winners – it is the same tax money that goes around. Private enterprise job creation generates “new money” where government gains by means of taxation - higher consumption = more taxation.
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