Finance Minister Pravin Gordhan will present the 2012 budget on February 22 at 14:00 in Parliament. This amid the ongoing debt crisis in Europe which is likely to heavily impact on the local economy. Economists expect growth domestic product (GDP) growth performance to suffer some falloff on account of export volume reductions to Europe.
The national Treasury website has requested citizens to submit their ideas for the 2012 Budget. The forms are available online on the department’s website.
National Treasury said in the Medium Term Budget Policy Statement in October 2011 that “the 2012 Budget is being prepared in an exceptionally challenging environment. Slowing world economic growth, an unresolved financial crisis in the Euro area and a sluggish recovery in the United States all point to extended difficulties in the global outlook.”
Gordhan announced downward revision of expected economic growth figures. He said South Africa’s GDP was expected to grow by 3.1% in 2011 – downward revision from 3.4%, projected to reach 3.4% in 2012, 4.1% in 2013 and 4.3% in 2014
Consumer Price Index (CPI) inflation may show some upside potential, mainly due to oil and a higher follow-through from a somewhat weaker Rand compared to 2010-2011. CPI may peak in 6%-7% territory in the first quarter of 2012.
Government debt is set to rise to about 40% of GDP by 2015, after which it is expected to stabilise and decline. Government aims to achieve fiscal consolidation by shifting the composition of public expenditure towards investment and economic development in order to ensure sustainable long-term economic growth.
In the 2012 Budget Speech, government is expected to shed more details on the R25 billion economic support package announced in the Mid-Term Budget Policy Statement aimed at helping to make industry more competitive and to create jobs. We can also expect more information on government’s ambitious health plan, the NHI.
Expectations from experts
ABSA capital’s lead economist on South Africa, Gina Schoeman:
We are expecting that for this current fiscal year which will be the year of 2011/2012 which ends in April, the budget deficit that is to be announced will be narrowed slightly and most of the reason behind this is because revenue estimates are ahead of target and spending is trailing a little bit behind than what Treasury was expecting in last October.
So, the good news for this current fiscal year is that the budget deficit in South Africa this year is going to be reported as slightly smaller than expected which takes a lot of pressure off the financing of the very near term. However, if we look to the outer years that will be fiscal years 2012/2013 and of course fiscal year 2013/2014, unfortunately because of the macro outlook that has deteriorated around the world and in South Africa, we are expecting the budget deficit to be announced as wider than what Treasury was expecting last October.
Our main budget estimate which is different from consolidated is looking for the budget to deteriorate to around -5% by the end of the forecast period – so that will be by the end of the 2013/2014 year and this is far by previous expectations from Treasury that it will be -4.8%. And of course with that comes concerns that we are going to have to finance a lot more in South Africa and we believe the rating agencies that have already downgraded our outlook are going to be focusing very much on the details in the budget to decide what to do with South Africa’s actual credit down the line.
Senior economist at Econometrix Tony Twine:
I think people’s expectations of the 2012 Budget are largely controlled by what was put forward by the Minister of Finance, in his 2011 medium term budget policy statement speech at the beginning of November last year. This three year budget has largely taken much of the speculation out of the short of shape and size of the budget that follows in February of the following year.
What we get to see in February is the fine-tuning of many of the tax numbers and that sort of thing that were laid out in the aggregate plan form during the budget policy statement. So we know that the Minister of Finance is currently caught in a squeeze between declining rates of growth in the South African economy that we see all around us and the desire to try and help the economy along by spending his way out of the hole that South Africa like many other economies of the world appears to be sinking into.
However, he cannot increase his budget deficit – in other words the amount that he spends less is the amount that he receives. He cannot increase that without running serious dangers of being looked at by the capital markets of the world and in that respect he finds his hands are pretty much tied in trying to breathe some life into the economy from the fiscal point of view.
The tax rate we know are likely to go up, rather than remain the same and we also know from both the budget policy statement and the State of the Nation that there are big infrastructural spending plans on the cards. Those infrastructural spending plans gobble up large amounts of money over a three year period and as a result I doubt that there is a lot of room outside of the infrastructure plans for the minister of finance to maneuver in terms of spending on social support and pensions and that kind of thing.
Senior economist at KPMG, Lullu Krugel:
Well, the money that will be spent will definitely be less than the past. The economy is still under a lot of pressure and we will probably see a deficit of around 4%. Another key thing which we are hoping to get clarity on is the funding of the National Health Insurance. It looks like it will be coming out of general tax income but the Minister did indicate that there might be some increases in tax to fund NHI, that might be from two sources potentially, vat or personal income tax, but I think it will be the personal tax route.
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