Yesterday finance minister, Pravin Gordhan, delivered the much anticipated mid-term budget speech at Parliament, amid chaotic clashes between police and protesting #FeesMustFall students. The speech follows a raft of charges relating to the embattled minister’s tenure at the South African Revenue Service (SARS), for which he will appear in court on November 2, 2016.
VOC’s Breakfast Beat spoke to associate analyst of Kagiso Asset management, Reza Ismail who dissected the speech.
Ismail explains that Gordhan provided an interim assessment in preparation for the national budget speech in February, providing insight into where the country is in terms of its fiscal projection.
Calling attention to the political climate, he says that it is important to note that Gordhan delivered his speech amid widespread chaos, where right outside Parliament protesting students clashed with police forces.
“It was quite an important event yesterday, so it must be seen in that broader context,” he stated.
In terms of the results, he says that South Africa is working on a bigger budget deficit than previously, which currently stands at 3.4 per cent of the overall GDP.
Ismail says that the R23 billion shortfall in tax collection gave rise to the deficit, resulting in an additional funding gap that government needs to fill.
“Remember governments funding is the same as your traditional household budget; there is revenue coming in and expenditures going out, then you have spent more than you’ve made.”
He says that the classical tool of closing the expenditure gap will include government issuing more debt by selling more bonds or treasury bills, which is subsequently bought by the South African investor community, but more generally foreigners.
Brown, however, asserts that once a country has a mounting debt burden, the capacity to grow becomes constraint, conversely forcing increased debt sales.
“Our economic growth in terms of real GDP was cut to 0.5 per cent, which is very low,” he said.
On a positive note, he says the expenditure ceiling was lowered by 26 billion, which sets a cap on various expenditures on aggregate level.
Brown further notes that the revenue undershooting is not going to be looked at lightly by credit rating agencies and that a pronouncement on additional taxes is to be expected.
“There was already R15 billion announced in February and minister Gordhan was looking at an additional R13 billion, which would take the 2016/2017 fiscal year taxes to R28 billion.”
With regard to the proposed funding of R9 billion for the National Student Financial Aid Scheme (NSFAS), Ismail says that while the cost of higher education remains an on-going issue, basic education proved to be the biggest item in terms of expenditure.
With regards to university subsidies, he says that it is expected to grow by 10.9 per cent.
Given the fact that students are standing firm in their call for completely free and decolonised education, Ismail asserts that an allowance of this nature involves trade-offs.
“So you can’t have an indefinite amount going toward student funding, because it means that you will be taking from municipal infrastructure, housing, or healthcare,” he said.
Commenting on the style of the speech, Ismail described Gordhan’s address to Parliament as “statesman-like.”
“There were lots of philosophical quotes, but where the nuts-and-bolts of the numbers are concerned, with regards to the downgrade, it’s going to come out as a miss,” Ismail continued.