Budget tightrope

Finance Minister Pravin Gordhan has ignored opposition from trade union federation Cosatu and dug deep in a tough funding environment to find R5-billion for a wages subsidy to help youngsters get into the jobs market.

This was in addition to the R9-billion job-creation fund announced by President Jacob Zuma in his state of the nation speech 10 days ago, and other programmes with a total value of more than R150-billion to be spent over the next three years.

Buoyed by better-than-expected personal tax revenue, Gordhan added R94.1-billion to the existing spending plan for the next three years. More than a third of that will go to cover the cost of last year's public-sector wages increase.

He added R24.3-billion to planned spending on education over the next three years, with R8.3-billion to build and repair schools, and R9.5-billion to expand further education and training colleges.

He added R8-billion to seed the launching of a national health insurance scheme and said proposals on mandatory saving for pensions would be published soon.

But his largesse came at the price of heavy borrowing and a delay in the timetable for a reduction of the Budget deficit, which peaked at 7.3% during the recent global recession.

Cosatu leaders did not attend Gordhan's speech and were not immediately available for comment. But one of its biggest affiliates, Nehawu said it rejected the youth wage subsidy, saying it was ''not a job-creation initiative, but a corporate welfarism''.

Business commentators worried mainly about the news that the Budget deficit would be reeled in more slowly than Gordhan forecast in October.

Stanlib economist Kevin Lings said the Budget "suggests the reality of the situation in which government expenditure is under enormous pressure because of all the different areas they are trying to cater for".

Reminding MPs that 42% of people between the ages of 18 and 29 have no work, Gordhan said: "We must offer young work-seekers real hope where at present there is despair. We need to do things differently."

A proposal for the youth wage subsidy first mooted by Zuma a year ago will be put to business and labour at the National Economic Development and Labour Council tomorrow and might be refined before it is implemented in 2012, he said.

No sector was obviously punished in Gordhan's Budget, but he stressed the need to save on non-essential spending and to allocate the state's money to projects that will sustain the economy and increase employment.

Gordhan's good news included R8.1-billion in tax relief for individuals to compensate for the effect on tax rates of inflation.

He boosted the duty-free portion of the transfer tax on a home by 20% to R600000, and said the government would investigate ways of encouraging tax-free savings for the deposit on a first home and for tertiary education.

On the downside, he said the government would take 15% of gambling winnings, including Lotto payouts above R25000, from next year. He announced the usual increases in taxes on petrol, cigarettes and alcohol.

Government borrowing will soar, making the state's interest bill the fastest-growing expenditure item.

Gordhan stressed, however, that the government would remain focused on fighting inflation, fiscal discipline and stabilising the exchange rate of the rand.

"We expect the governor of the Reserve Bank to be vigilant in monitoring inflationary pressures and in ensuring that monetary policy is effective in meeting our inflation targets.

"The credibility of monetary policy in achieving our targeted inflation range, combined with our commitment to fiscal discipline, are important foundations for moderating exchange-rate volatility," he said, without reaffirming his instruction in last year's Budget to include job creation and economic growth in the Bank's mandate.

Though he said infrastructure spending would remain the central pillar of the economic growth and job-creation drives, total infrastructure spending is down about R13-billion from the original Budget estimate this year to R136.2-billion, dropping to a nominal R123.9-billion in 2014-2015. Spending by Eskom is expected to fall from R86.8-billion this year to R67-billion in 2013-2014.

But Gordhan did announce plans to help the government spend its money better at the national, provincial and local levels.

"The public sector's record on infrastructure expenditure is not great," the Treasury said in a statement, explaining the need for centralised planning support.

Anticipating the objections likely from Cosatu, the SA Communist Party and some sectors of civil society, Gordhan acknowledged that his proposals included hard choices.

"This Budget sets us on a path that will be neither easy nor uncontested - hard work and difficult choices lie ahead," he said.

In a move likely to please many, Gordhan said it was time to take on the banks. "I believe it is time to put in place measures that will ensure that banking charges are fairly set, are transparent and do not create undue hardship."

He sounded an alarm about the state's rising debt burden, and said he would propose a set of guidelines to parliament to ensure that the children of this generation did not have to pay for its profligacy.

"We don't want an unmanageable increase in expenditure, nor do we want the severe austerity measures some Western countries have had to adopt," he said.

Gordhan said the public-sector wage bill had doubled over the past five years to R314-billion and now accounted for R4 of every R10 the government spent.