In his state of the nation address earlier this month, President Jacob Zuma warned that our Growth Domestic Product (GDP) growth is now “expected” to drop to 2.5% and then noted that “we need growth rates in excess of 5% to create more jobs”. He also unveiled the National Development Plan (NDP) as a “roadmap” to a South Africa without poverty, inequality and high unemployment. With this in mind, what can we expect when Finance Minister Pravin Gordhan delivers his budget speech tomorrow? This is going to be one of the most important budget speeches in recent years and the Minister of Finance is expected to make some tough choices in fiscal terms. Since the global recession hit South Africa a few years ago, we have not, like most countries, fully recovered. The sluggish economic growth of recent years has, among other things, stifled government revenues and put more pressure on government to spend. This explains why Gordhan, in his medium-term budget statement, raised serious concerns about the negative effects of subdued growth rates on revenues. With Zuma announcing that government will be looking into tax policies, there is speculation that taxes will have to go up in order to support and sustain growing public spending. The question is: will taxes be raised this year or next year in order to finance spiralling public spending? Even if Gordhan announces tax hikes this week, it is highly unlikely that he will do anything that discourages investment into South Africa. With government looking to attract investment into South Africa and, in the process, discouraging capital outflows, it is highly unlikely that we will see Gordhan raising corporate taxes in any significant way. Increasingly, government seems to accept that a rapid turnaround in the economy is dependent upon greater investment, making the cost of doing business in SA as little as possible, expanding the tax base and reducing the rapidly growing numbers of people receiving social grants from the state. We can expect Gordhan to raise sin taxes and income tax for individuals to help support public spending. A small VAT increase can also be expected. But the problem in South Africa is that there is high unemployment and sectors such mining, agriculture and textile are continuing to shed jobs. This means that the tax base is shrinking and it becomes too much to expect a small number of taxpayers to support a growing number of social grants recipients.
The wealthy in South Africa will be watching to see if Gordhan imposes any high taxes on them. The tricky part is ensuring that a tax on individuals should not hurt struggling South Africans too much and send a message to the rich that government is punishing them for being wealthy. This budget speech comes at a time when things are not looking good for SA. The rating agencies downgraded South Africa’s credit rating last year. Then there is the on-going economic crisis in the Eurozone, our largest trading partners. Some companies are forced to lay off their workers as exports decrease. A growing number of South Africans are not happy with their incomes and a growing number of them are resorting to protests and even violent means to voice their grievances. The cost of these protests to the economy is immense. This budget speech also comes at a time when the country prepares for the 2014 elections. It is important for the ruling party to be seen to be presiding over a stable economy. But the two big questions in this year’s budget speech are: 1) how is it going to deal with the problem of high unemployment among the youth and 2) is it going to begin facilitating the implementation of the NDP. With regard to the former, it is important for the ruling party, ANC, to ensure that the youth is not alienated. Having an alienated youth is not something that is in the interest of the ruling party. Zakhele Ndlovu is a Political Science lecturer who specialises in Political Economy at the University of KwaZulu-Natal (UKZN)
– By COMMENT: Zakhele Ndlovu, Political Analyst, UKZN
