Eastern Cape to get R 52 Billion budget

Finance Minister Pravin Gordhan tabled South Africa’s 2014  budget yesterday that holds the line against populist pressure, but provides no real tax concessions and few bold reforms to get growth going or tackle unemployment.

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The blame doesn’t necessarily lie with the Minister because he appears to have learnt that the President will not back brave reforms in the face vested interests in the tripartite alliance.

In his speech the Minister reflected favourably on progress made since 1994. He laid the blame for slow growth and job losses in the past five years, however, on the global financial crisis without mentioning South Africa’s additional “crisis of political leadership” under President Jacob Zuma and his ANC.

It is this poor leadership that has left our economy stuck while our competitors have bounced back strongly.

As usual the Minister made the right noises about implementing the National Development Plan (NDP) in the future, but we have had the plan in place for a year-and-a-half, and government has little to report on actual implementation, especially when it comes to:

  • Holding teachers to account for their performance;
  • Removing of trade barriers;
  • Increasing infrastructure spending – which is currently stuck at 7% – to 10% of GDP;
  • Regulatory reform to boost business growth;
  • The introduction of strong incentives for Special Economic Zones; and
  • Public service reform.

Implementation has not happened because the ideological enemies of the NDP are many, at the highest level of governments and the President is not prepared to take them on. The main result is that we have failed to create sufficient jobs to begin to absorb the 1.4 million South Africans who have become unemployed in President Zuma’s term of office.

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This Budget shows that interventions like the Jobs Fund and the watered-down Youth Wage Subsidy have had a limited positive impact, but confirms that only the private sector can create the millions of jobs we need.

In this regard, South African investors and entrepreneurs need to be sure that government will do more than just ‘hold the line’, and will take tough decisions to make South Africa a better value investment destination.

They will not get this surety from this budget, nor will they get simple concessions like a cut in taxes on employment such as the Unemployment Insurance Fund and Compensation Fund contributions. These would be affordable since these funds have a R17 billion combined surplus this year.

With respect to cost-containment, the Minister has set ambitious targets in this budget, but it is not clear what the consequences will be for Ministers that don’t deliver.

If we don’t meet these targets we will be in trouble on the debt front because last year’s forecast that government debt would peak at 40% in 2015 has now changed to a new ‘peak’ of 44% in 2016. Already today one rand out every ten we spend goes to debt repayment.

The only solution is to get economic growth going, and – given the lack of real tax relief for corporate or individuals, and the Davis Commission’s scathing assessment of our small business tax system (referenced in the budget) – it is not clear that the small business tax reform ideas Minister Gordhan floats will go far enough.

KwaZulu-Natal receives the largest budget of all the provinces in terms of equitable share.

The province will receive R 78 billion for 2014/15, followed by Gauteng with R 68.6bn and the Eastern Cape with R 52bn.

Gordhan added that Education will get the biggest slice of this year’s budgetary pie at R253.8 billion.

The money has been set aside for the department of basic education, higher education and training, and arts and culture.

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