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Gordhan Targets Wasteful Expenditure

12 November 2012   (0 Comments)
Posted by: Author: Eugene du Plessis
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Gordhan Targets Wasteful Expenditure

The Finance Minister cracks the whip in an otherwise "boring” mini-Budget

IF South Africa is truly in the eye of an economic storm, then cool heads are required, and it was a cool medium-term budget policy statement that Finance Minister Pravin Gordhan delivered on 25 October 2012.

In the context of negative perceptions of the country by potential foreign investors, it was a good speech with no shocks or surprises, with the main promise being to cut back on wasteful expenditure.

However, for local taxpayers it was nonetheless sorely lacking in inspired leadership. The big picture in South Africa is that the pool of tax revenue is too small for the social needs of the country, so we need to grow the economy. There were no concrete plans revealed for stimulating the economy. Of course, there is the infrastructure spending plan, but once again little in the way of definite plans—and if we are to be reliant for stimulus on government spending, then this has to be spelled out in detail. It was not.

Recent months have seen two credit-rating agency downgrades,wide spread violent industrial conflict, and the news the day before Gordhan’s speech that foreign direct investment has fallen by 43% in the past year—despite such flows surging across Africa and the rest of the developing world. What foreign investors want to see above all else is stability, and this mini budget really talks to such stability.

There was an outside chance of populist measures, but instead there was heartening talk of fiscal discipline, and continuing with government’s long-term strategic plan. There were also hints at definite steps to improve delivery by rewarding municipalities which deliver, and penalising those which fail to deliver. Hitting them where it hurts is the only way to meaningfully effect change.

Revealed in departmental annual reports submitted so far this year for last year’s expenditure, the auditor-general has identified R3.8 billion and R2.44 billion in irregular and un authorised expenditure respectively, and R444 million of fruitless and wasteful expenditure, to top R6.7 billion.This comes even as the reports show the national departments in question achieved only 52% of their targets. There is a lot that can be achieved in this area.

There were no tax changes—and that is a good thing. However, it does not mean that there will be no surprises come February, as we saw from the last budget when CGT and Dividends Tax were effectively and unexpectedly increased. However, given the tone of the speech, any such changes in February would come as a surprise.

If anything, it was a boring budget speech, which is exactly what investors prefer. Tax revenue will be improved by closing loopholes and tightening tax collection—something SARS has proven itself adept at. While it seems clear that the budget deficit will rise, slow economic growth is not a fertile ground for addressing this at the moment. South Africa is in a phase of fiscal consolidation over the medium term. Nonetheless, the economy is weakening, and one would have hoped for some direction from government. Sadly, there was a dearth of imaginative ideas. Little (if anything) is being done to address the stark reality of South Africa’s massive imbalance between those who pay taxes and those who benefit from them.

Finally, given the call by President Zuma for executives of South Africa’s corporates to take a salary freeze, it was a little ironic to hear Gordhan describe a higher than expected wage bill for public servants as one of the biggest shocks to the fiscus this year. A case of "do as we say, not as we do”?

Source: By Eugene du Plessis (Taxbreaks)


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