SA has formula for growth, says Gordhan

The projections in this week's medium-term budget policy statement might be based on a best-case scenario for the European and world economies, but finance minister Pravin Gordhan said this best-case scenario started to emerge some 48 hours after he delivered his speech in parliament.

Speaking after a meeting at Nedlac on Friday, Gordhan said it was encouraging that what world leaders have been insisting on, namely decisiveness from European leaders prior to next week's G20 meeting, had begun to unfold with the agreement reached in Europe early on Thursday morning.

"What we have, and what we can see in the response of the markets (on Thursday), is at least a framework which begins to say European leaders do have an answer."

The big issue Europe now faces is to find the right balance between growth and fiscal consolidation, Gordhan said.

But he believes South Africa has already found that formula.

"We are making sure that we have real growth of 2.3% over the next three years; we are developing packages like the competitiveness package of R25-billion to support manufacturing and other sectors in the economy," he said.

"But equally we say over the next three years our budget deficit will move from 5.5% to 3.3% and that is our contribution to ourselves in terms of fiscal consolidation."

Analysts have voiced concerns about where the money will come from to reduce the estimated deficit, and in the budget statement even Gordhan referred to policy measures to raise tax revenue if the economy fails to recover as predicted.

About concerns that taxpayers are already straining under too many taxes, Gordhan said tax rates for business and individuals are very competitive compared to the rest of the world and there is no argument to be made that people are being overtaxed.

"We will only make tax decisions from this point onwards until February next year," he said about the possibility of higher tax rates.

"We have said honestly and frankly to the South African public that we are living in very uncertain times, and what we require is agility and adaptability."

Analysts have also warned against the increasing trend of user charges (to help fund infrastructure spend on electricity, the fuel pipeline or roads), effectively putting an extra tax on weary taxpayers.

But Gordhan said user charges such as toll fees, port fees and airport fees are a well-established principle in public finance worldwide.

"Taxes do not cover everything anywhere in the world," he said.

"(User charges) is part of the way to recover costs, but at the same time it has to be affordable.

"We understand the kind of pressure citizens are being faced with."

The budget statement made no mention of a possibility that the treasury might end up paying for the improvement of freeways in Gauteng as consumer groups and unions continue their fight to avoid paying for the new roads.

"If taxpayers or certain groups want the money (for the Gauteng freeways) to come from the fiscus, and let's assume it is R20-billion, then we will have to spend R20-billion less somewhere else," Gordhan said on Friday.

"This (the fiscus) is not a limitless pot. It is a fixed pot and money is allocated in a particular way and if we want R20-billion for one particular thing we have to take R20-billion from somewhere else."

Gordhan said there are lessons to be learnt from the Gauteng freeway experience, to see how the government can change the way in which it consults, informs and communicates with people.

"What we want ultimately is a constructive approach to resolving these questions, which ensures that we can continue to build our roads, and we can continue to charge people for use of roads where it is appropriate," he said.

According to the budget statement, underspending of capital budgets is a core concern for the treasury.

Underspending by municipalities has risen from 14% in 2008-09 to 25% in 2010-11 and provincial underspending rose from 8.3% to 16% over the same period.

"We are putting in a lot of support mechanisms, which will hopefully come into effect next year and which will ensure better infrastructure planning takes place, as well as better design of specifications and better projects management to ensure delivery occurs," Gordhan said.

"We are also trying to create incentives which will ensure that qualified people are more willing to work in smaller municipalities and the outlying provinces, because unless you put skills there you will not be able to deliver the kind of sophisticated infrastructure we need."