Cape Town - The economy is doing quite nicely, Finance Minister Pravin Gordhan told parliament and South Africans in his budget speech.
This is considering that the aftershocks of a once-in-70-year economic earthquake are still being felt, Gordhan said, referring to the global financial crisis that hit the world in 2008 and forced several countries worldwide to the brink of bankruptcy.
The crisis set SA back considerably due to a collapse in commodity prices, a sharp decline in international trade and unprecedented problems in financial markets. As a result, the economy contracted by 1.5% in 2009 and nearly 1 million jobs were lost.
Recovery was ensured by strong government intervention, including accelerated spending on infrastructure, huge financial assistance to businesses in distress and expanded unemployment insurance benefits and income support to the most vulnerable in society.
These steps were successful. “We have achieved economic growth since 2010. We have more than recovered the jobs that were lost,” Gordhan said.
But he also warned that the new office holders to come into government after the elections in May will still have their work cut out to accelerate economic growth to at least 5% per annum, compared to the 2.7% gross domestic product growth expected in 2014. “We have to grow the economy at 5% or more per year to make rapid progress in creating jobs and reducing poverty.” The national development plan already addresses this challenge and a wide range of initiatives are under way. These include continued investment in infrastructure, new spatial plans for cities, improved public transport, upgrading of informal settlements and a tax incentive to encourage youth employment.
Further expansion of public works programmes and a renewed focus on accountability and quality in education are also in the offing. The amounts to drive these initiatives are huge. Government has spent more than R100bn on employment projects over the past five years, funding more than 4 million job opportunities. These projects will continue with money set aside to create another 6 million job opportunities over the next five years. “We have spent R115bn on higher education during the last five years of which R18.6bn through the National Student Financial Aid Scheme (NSFAS) to help needy students. Allocations to the NSFAS amount to R19.4bn over the next three years,” he told parliamentarians.
Spending on social assistance has increased from R75bn in 2009 to R118bn this year, and the number of poor people who receive some kind of government grant has increased to 15.8 million today. Spending on human settlement programmes amounted to R70bn over the last five years, contributing to 590 000 new houses being built. This spending on social services and housing for the poorer members of society dwarfs the amount that government has spent on growing industry. Industrial incentives amounted to R22bn over the last five years, with a similar amount set aside for industry over the next five years. These, and other projects, will hopefully put SA in a position to benefit from better global economic growth. Gordhan reminded the country that it is “ultimately the state of the global economy and the dynamism and agility of the SA economy that shapes domestic growth”. Expectations are that that global growth will continue in 2014 and 2015, bringing opportunities to increase exports. Gordhan sees the depreciation in the exchange rate as an opportunity rather than a disaster, saying that it has been supportive of export growth while reducing reliance on capital inflows. However, he warns that fiscal and monetary policies must continue to aim at keeping inflation low to maintain the recent gains in competitiveness brought about by the weaker rand. In this scenario, Treasury forecasts that economic growth can rise to 3.5% next year, while maintaining an acceptable current account deficit and keeping inflation within the Reserve Bank’s target range of 3% to 6%. He mentions two serious risks: further delays in construction of additional capacity to generate electricity, and protracted labour disputes which could depress consumer spending and business confidence.
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