Business Day
*More spending, lower deficit: Gordhan silences sceptics* *Mariam Isa and Linda Ensor, Business Day, Johannesburg, 23 February 2012 *CAPE TOWN --- The Treasury has managed to slash the budget deficit while also funding a R1,1-trillion budget for the ambitious infrastructure and social programmes outlined by President Jacob Zuma in his state of the nation address this month.
Finance Minister Pravin Gordhan believes that "South Africa's finances are in good health", and the figures he announced on Wednesday should reduce the chances of a downgrade in the country's sovereign credit rating.
Taxpayers will be pleased by the tax breaks of R9,5bn to individuals and R6,4bn to companies, although the rich will be paying more in capital gains tax and withholding tax on dividends.
The budget deficit for 2011-12 is projected at 4,8% of gross domestic product, sharply down from the 5,5% forecast in the October 2011 medium-term budget policy statement. It is now expected to fall to the key 3% level by 2014-2015.
Standard Chartered's regional research head for Africa, Razia Khan, described the projections as "spectacular", compared to what financial markets had expected.
Although the JSE all-share index was down 0,4% to 34006 on Wednesday, analysts said this was due to fresh concerns over the implementation of Greece's second bail-out package, and Mr Gordhan's budget speech did not have a significant effect.
The Treasury's view that tax revenue for 2011-12 will be R10bn higher than expected was one of the reasons the budget deficit fell sharply from the October estimate. Government spending is also expected to be R6,7bn below budget estimates, largely as a result of underspending on payments for capital assets.
The budget deficits for the coming years narrowed, despite the fact that the economy is set to expand more slowly than the Treasury predicted in October.
Growth will retreat to 2,7% in 2012 from 3,1% in 2011 before rising again to 3,6% in 2013 and 4,2% in 2014, Mr Gordhan said.
Infrastructure spending was a highlight of the government's R1,1-trillion budget for 2012-13.
Over the next three years, budgeted infrastructure plans amount to R845bn --- about R300bn in the energy sector and R262bn in transport and logistics projects. Public investment growth will average 4,3% a year over this period.
This is only a drop in the ocean of what is available, as Mr Gordhan said the total resources of government, state-owned enterprises and development finance institutions amounted to R4,5-trillion over the next three years. But what is critical will be building the state's capacity to spend the money effectively. Mr Gordhan conceded that there were "several weaknesses" in this regard and that in the past "spending has lagged behind plans".
In 2010-11 only R178bn (68%) of the R260bn allocated for infrastructure was spent.
Central to the Treasury's fiscal projections will be restraining the public sector wage bill --- the budget has made provision for a 5% cost of living adjustment for public servants in the coming year, exclusive of pay progression.
It also sees average real growth in wages declining from 9,4% between 2007-08 and 2010-11 to 1% over the next three years.
This introduces uncertainty into its planning, given that in 2012-13 the wage bill was R8,1bn more than budgeted, after tough negotiations with trade unions.
The Treasury sees its public sector borrowing requirement at 7,1% in 2012-13, falling to 6,2% and 5% in the outer years --- also lower than it had originally predicted.
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