Tue Dec 06 08:00:42 SAST 2016

Pravin's done his job - now it's up to ANC

Graeme Hosken, Shaun Smillie, Ray Hartle, Jan-Jan Joubert, Bianca Capazorio and Babalo Ndenze | 2016-02-25 06:14:47.0
DAY OF DESTINY: Finance Minister Pravin Gordhan and Deputy Minister Mcebisi Jonas, right, arrive at parliament yesterday to deliver the 2016 Budget speech

Whether Finance Minister Pravin Gordhan's magic wand will save the country from looming economic downgrades will depend on whether anyone in the government heeds his advice.

"The Budget is cleverly crafted and no one can be critical of it. But the big question is whether we will see people in the government co-operating and following the Finance Ministry's instructions," said economist Azar Jammine.

Financial traders were unconvinced and the rand plummeted by 30c to R15.56 to the dollar after the speech.

The Budget - aimed at cushioning the poor and middle class from economic hardship - featured a halt on tax hikes, a freeze on thousands of non-critical public service jobs, plans for the trillion-rand nuclear deal put on ice, financially crippled state entities placed in the crosshairs and a R16.3-billion funding boost for higher education to help students.

Gordhan announced that the government was mulling plans to merge, reconfigure or even close some poorly performing state-owned entities.

With total government guarantees for all such entities at R467-billion, and a negative return on equity, some, like SAA, are a major strain on the public purse.

Jammine said that although there was a lot of substance in the Budget, it was also filled with lots of promises.

"This budget, without a doubt, is directed at the ratings agencies."

He said whether the Budget worked as Gordhan intended would depend on whether there was government co-operation in its implementation.

"Last year's Budget was very conservative, with expenditure cutbacks, but it was all undone by the public service wage agreement.

"One has to question whether, at the end of it all, it is going to change the direction of South Africa's declining economic growth path."

Kenneth Creamer, of Wits University's School of Economics and Business Sciences, said although the Budget had a serious back-to-basics tone, and showed the government's determination to dish out tough medicine, it was disappointing that it was projected that the economy would grow by only 0.9% this year.

"But, if the country sticks to Gordhan's Budget, it's likely that South Africa will avoid a further economic downgrading."

Stanlib chief economist Kevin Lings said: "On balance, it's good, especially around drought relief, containment of public servants' salaries, removal of barriers to private-sector investment, increased involvement of the private sector in state-owned enterprises, and more private-public partnerships in the energy development sector."

But he said the focus should be shifted to whether the targets set could be achieved "as there has been fiscal slippage over the last few years when the government set unachievable targets".

Bidvest Bank chief forex dealer Ion de Vleeshauwer said the Budget did not stipulate where growth would be increased.

Asked if the Budget was enough to stave off credit rating downgrades, Gordhan told eNCA news channel: "That's what I hope."

Although he avoided imposing the harsh austerity measures expected when he tabled his budget of R1.463-trillion, it will not be plain sailing for all.

The government aims to collect R1.324-trillion over the next year, including an additional R18.1-billion in tax revenue, and to spend R139-billion more.

Social-grant increases will barely register a blip in bank accounts and planned fuel levy increases are expected to send food prices skyrocketing.

Merwyn Abrahams, director of the social advocacy group Pietermaritzburg Agency for Community Social Action, said the Budget did little to help the poor.

"The fuel levy will not only make transport more expensive, it will have a knock-on effect on food prices. The grant increases don't keep up with the recent rapid rise in food prices. Between November and January there was a 9% increase in food prices."

Additional reporting by Bloomberg and Business Day


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