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Gordhan’s real challenge

18 April 2016   (0 Comments)
Posted by: Author: Patrick Cairns
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Author: Patrick Cairns (Moneyweb)

The lost middle.

Finance minister Pravin Gordhan’s 2016 budget speech was widely regarded as a commendable attempt to stave off a credit ratings downgrade for South Africa. He said many of the right things and promised fiscal prudence and stability.

He was aided by South Africa’s remarkably effective tax collection. Many doubted that the South African Revenue Service (Sars) would meet the target that had been set, but it did.

"Our tax collections are dead on, in spite of Sars Wars and everything else that’s happening,” tax expert, Professor Matthew Lester told the Old Mutual Investment Managers Conference in Cape Town on Thursday. "Tax collections are doing better than many expected because tax buoyancy is doing so much better.”

The immediate problem facing Gordhan, however, is spending this revenue efficiently.

"He is addressing this by strengthening the Public Finance Management Act, questioning how money is spent by government departments, a new public procurement system, and hopefully better governance,” said Lester. "He’s hoping that will be enough to trim expenditure as we need to do.”

The fact that Gordhan is now a senior member of cabinet who can’t be pushed around due to the circumstances that led to his re-appointment puts him in a strong position to see his ambitions through. However, Lester warned that while this is positive in the short term, the real risks to the country may need more than Gordhan can offer on his own.

He pointed out that South Africa looks after it’s children through child support grants, and its elderly through government pensions. However, there is a huge population in the middle that falls outside of government’s safety net.

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