Budget at a glance

If you missed the salient points of the mini budget or Medium-Term Budget Policy Statement (MTBPS) yesterday, here are the important facts and some reaction to the finance minister, Pravin Gordhan’s speech:

Ministers’ perks will be cut

As part of the belt tightening measures the finance minister, Pravin Gordhan, has waged war on parliamentary perks. So now no new credit cards will be issued and existing ones will be cancelled. In addition the executive, including provincial and municipal executives, have agreed that from 1 December 2013 they will standardise the cost limits of official cars, buy cars in bulk to reduce costs, that security features will be a consideration and that there will be no compensation for use of personal cars.

When it comes to overseas trips ministers must fly business class only two assistants are to accompany them. Car hire will be limited to B-class.

And there will be no more accommodation in plush hotels offered to ministers while they wait for their ministerial houses. Instead they will have to rent apartments and adhere to new refurbishment guidelines.

Catering guidelines will be introduced to reduce event costs, including better use of government facilities rather than hiring outside venues and there will be no public funds spent on the purchase of alcohol. Entertainment allowances will be limited to R2,000.

The economic outlook and spending

Global economic activity remains subdued and South Africa’s growth seems to mirror this trend. “We now expect growth of about 2.1% in the South African economy this year, rising to 3.5% by 2016,” said Gordhan.

Consumer price inflation will average at 5.9% in 2013 and remain within the three to six percent target band next year.

Gordhan added: “A trade deficit of 2.6% of GDP was recorded in the first half of 2013, contributing to a deterioration in the current account of the balance of payments to about 6.5% of GDP.”

The budget deficit, which refers to the shortfall in tax collections that government will need to borrow for, will stay at 4.2% and should narrow to three percent in 2016/2017. Expected gross tax revenue for 2013/14 has been revised down marginally by R3 billion to R895 billion. The government will spend R110 billion on debt service costs which constitutes almost 10% of the total budget.

Spending is set to grow by 2.2% above inflation over the next three years. When it comes to employment and social security, government will increase spending by 14% to R75 billion. Spend on education will jump by 7% over the next three years and reach R286 billion in 2016/2017. No mention was made of National Health Insurance plans in the MTBPS but spending on health will increase by 7.3% to hit R328 billion by 2017.

Budget adjustments

Gordhan has set aside R2.3 billion for national departments and provinces to cover inflation-related salary increases, while R894 million has been rolled over from unspent balances in 2012/2013. Deployment of troops in the Democratic Republic of Congo will receive R150 million, while R374  million will be allocated to provide broadband internet at schools. To fight substance abuse, R20 million has been set aside.

Mixed reaction

Opposition party the Democratic Alliance slammed the mini budget as just producing ‘more reassuring rhetoric with no real action to fix the economy and create jobs’. Tim Harris, shadow minister of finance pointed out that South Africa lags behind other developing nations. “Today there are 1.4 million more unemployed South Africans than there were on the day Jacob Zuma became president.  Lacklustre economic growth – which has slowed from 3.5% in 2011 to just over 2% this year – means we are being left behind by other developing economies.

Countries like Chile (4.1%), Malaysia (4.3%) and Turkey (4.4%) are all growing twice as fast as we are, showing that National Treasury is simply wrong in blaming “global circumstances” for our slow growth.

Instead, we have to look our recent domestic issues, what Treasury calls “labour disputes, electricity shortages and other supply-side disruptions”, which this budget contains no significant new measures to address.”

Partners at Grant Thornton welcomed the cost cutting measures but pointed to its election pleasing rhetoric. “The context of this medium term budget is clearly a pre-election one and focuses on addressing the common question which is ‘what is corruption and where is money being wasted?’  This is a very politically targeted budget with initiatives announced that will resonate with the larger voting public. There wasn’t any mention of increasing revenue and there was no indication by the Minister of pending tax rate hikes for next February 2014.  In last year’s medium term Budget there was a hint at SA needing to get ready for increases but nothing significant came through since then,” said AJ Jansen van Nieuwenhuizen, tax partner, Grant Thornton.

Absa said there were few surprises. “While there was some tweaking of the numbers here and there and the introduction of the new reporting methodology there were no meaty changes to policy or any contentious issues raised. There was not a peep on the Carbon Tax, for example or any word on the National Health Insurance this time around. What did provoke a fair amount of heckling and humour was the Finance Minister’s crackdown on public sector costs and the abuse of government privileges,” said Craig Pheiffer, head: Private Client Asset Management, at Absa.

This article was first published on Justmoney.