22/02/2016 – ACDP calls for bold and decisive steps from Gordhan’s budget

February 22, 2016

Press Releases, Statements

IMG_0629ACDP Parliament
ACDP Budget Expectations
Steve Swart, MP

ACDP calls for bold and decisive steps from Gordhan’s budget

  • Looming sovereign ratings downgrade must be avoided
  • Investor confidence must be restored
  • Economic growth must be stimulated to create jobs
  • Drought in an already weak economy may cause recession

ACDP MP and member of the Standing Committee on Finance, Steve Swart, has called on finance minister Pravin Gordhan to take bold steps in Wednesday’s budget to stimulate economic growth to create jobs, restore investor confidence, and avoid the looming sovereign ratings downgrade.

“In arguably the most important and anticipated budget speech since 1994, finance minister Pravin Gordhan must take bold and decisive steps to stimulate economic growth to create jobs, restore investor confidence, and avoid the looming sovereign ratings downgrade. A ratings downgrade will raise the cost of borrowing to unaffordable levels, and dissuade foreign investment.

The global economic outlook has deteriorated significantly since former finance minister Nene tabled the medium term budget policy statement in October last year, with commodity prices falling sharply, and China experiencing slowing economic growth.

In addition the country is facing a devastating drought, which could cause the already weak economy to go into recession as rising agricultural imports feed into rising inflation. In this environment, the country must stop shooting itself in the foot with poor management and decision-making, such as the inexplicable axing of Nene last year.

It will be crucial for Gordhan to restore the country’s damaged credibility and to restore a measure of confidence in its economic policies. He will need to stick to a strict fiscal consolidation path to placate investors and ratings agencies. It will need to be an austerity budget, which will not be popular in an election year.

It is estimated that National Treasury will have to find an additional R30bn per year for the country to stick to its target of reducing the deficit to 3% of GDP over the next three years.

Given the slow economic growth rate (projected to be less than 1% of GDP for 2015/2016) and decreasing government revenue, it is expected that Gordhan will announce further measures to cut government expenditure. This would be in addition to the expenditure ceiling imposed by former Nene, as well as the cost containment measures announced by president Zuma during SONA.

In order to balance the books, it is also probable that taxes will increase. Besides increasing sin taxes, Gordhan will in all likelihood raise personal taxes in the middle-to high-income bracket. While it is unlikely that corporate taxes will be increased, given slow economic growth rates, capital gains tax may be increased. There is also the outside chance of an increase in VAT, although this step will be politically unpopular.

He will also need to address the spiralling public sector wage bill, higher education funding and funding for the national health insurance system, as well as the unaffordable nuclear build programme.

The ACDP welcomes government’s engagement with business, and broadly supports the eight-point plan agreed to. This includes better management of state-owned enterprises, a commitment to fiscal consolidation, expediting public-private partnerships, ensuring policy certainty, instituting labour law reform, and intensifying anti-corruption measures.

We have long-argued that law enforcement agencies such as the SAPS, Hawks, NPA, SIU and AFU should be given additional resources to collect the estimated R30bn lost annually through corrupt and irregular state procurement practices.

We also look forward to the speedier implementation of the National Development Plan (NDP) in order to stimulate economic growth and create jobs. While we may expect an austerity budget, there will still be much needed expenditure on infrastructure development in line with the NDP.

The budget will be a very difficult balancing act given various political pressures, particularly from within the ruling alliance. The ACDP trusts, however, that Gordhan will take the necessary bold steps needed to deliver on fiscal conservatism, stimulate economic growth and job creation, restore investor confidence, and avoid the looming sovereign ratings downgrade.”

No comments yet.

Leave a Reply