Budgeting Under Stress

SOUTH AFRICA - In Brief 27 Feb 2014 by Iraj Abedian

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Minister of Finance Pravin Gordhan presented yesterday a balanced budget despite a lack of space for fiscal manoeuvres. His eye was clearly on averting another credit rating downgrade. The Minister spoke the right language in (1) containing expenditure and (2) keeping all welfare expenditure increases below or at inflation target. Whilst he made no pronouncements on the public sector wage bill, Minister Gordhan implicitly committed to keeping it under control. Be that as it may, the Minister’s projection that the budget deficit to GDP ratio would decline from an estimated 4.0 per cent in 2013/14 to 2.8 per cent in 2016/17 was too optimistic. Such an assertion was clearly meant to appease credit rating agencies. Also, neither his GDP growth projections nor his hope of expenditure containments were realistic. Given the recent outrage about corruption and the misuse of public funds, the Minister highlighted the scourge of wasteful administration with regard to properties, etc. However, he offered very little credible solution going forward. Against this backdrop, Minister Gordhan’s suggestion of a "deep audit" is anything but deep… In fact, it is the shallowest form of auditing. One minister cannot possibly audit another minister's programme. A “deep audit” requires an independent team of specialists examining the organisational structures of government departments and offering turnaround strategies, etc. Although there were no new taxes, indications are that there will be changes to the tax system when the Davis Committee on Tax offers its recommendations. So, from a political point of view, the Minister was smart not to introduce any new taxes in the midst of an electio...