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Budget had to protect growth, says Treasury

Thursday, 03 March 2016   (0 Comments)
Posted by: Author: Linda Ensor
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Author: Linda Ensor (BDlive)

The Treasury has defended the 2016-17 budget against criticism that its fiscal consolidation measures do not go far enough, saying that delicate trade-offs are required.

The budget has been criticised for transferring too much of the pain of fiscal consolidation and tax hikes to the outer years of the medium-term framework. However, Treasury chief director of budget policy Ian Stuart yesterday defended its choices during public hearings on the budget held by Parliament’s two finance committees.

Mr Stuart said fiscal consolidation could not be so severe that it knocked nascent economic growth. The Treasury wanted to give itself flexibility to decide later whether to cut expenditure or place more emphasis on tax hikes.

Mr Stuart said the Treasury had been squeezing departmental budgets on goods and services "extremely hard" for the past three years, and compensation budgets were also taking strain.

Kyle Mandy, a PricewaterhouseCoopers (PwC) partner, argued there was scope to have reduced the 2016-17 budget deficit further than the 3.2%. He said state expenditure rather than a lack of revenue was the primary problem and the state could have done more to reduce it, for example, by cutting the number of its departments.

The Treasury had overestimated the 2015-16 revenue outcome as being only R4bn below the projection contained in the October medium-term budget policy statement, whereas PwC had forecast a shortfall of at least R12bn, he said. If this materialised, it would have a knock-on effect on the deficit and on revenue forecasts for 2016-17.

Mr Mandy and Jannie Rossouw, head of the University of the Witwatersrand’s School of Economics and Business Sciences, argued for a rethink of the South African Customs Union revenue-sharing formula, which Mr Stuart said could see SA paying about R60bn to its poorer neighbours next year. Prof Rossouw also urged a reduction in the number of Cabinet posts.

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