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Gordhan has reduced the government’s real gross domestic product (GDP) growth forecast to 2.7% in 2014 from the 3.0% forecast earlier, but markedly better than the actual increase of 1.9% in 2013.
He also raised the GDP forecast to increase from 2.7% in 2014 to 3.4% in 2016.
“To make more rapid progress in creating jobs and reducing poverty, we have to grow our economy at 5% a year or more,” said the Finance Minister on Wednesday.
The ruling African National Congress has vowed to create 6 million jobs in the next five years.
“To etch a growth path that is inclusive, rapidly promotes black economic development, a wide range of initiatives are underway,” Gordhan told South African lawmakers.
Growth has slowed from 2.5% in 2012 and 3.6% in 2011 according to Statistics South Africa data released on February 25. In his briefing to the media before the Budget speech, Gordhan said that the lack of an increase in electricity generation capacity had been a constraint on growth and further delays to the new build programme were a major risk factor.
The Medupi power station was originally scheduled to connect to the national grid with the first of six 800 Megawatt units in 2011, but this is now only likely later this year. State-owned electricity utility last week declared two national power emergencies as forecast peak demand was below available capacity. Current available capacity is of the order of 32 000 Megawatts, while peak winter demand is normally above 37 000 Megawatts. In 2012 and 2013 Eskom managed that 5 000 Megawatt gap by reducing planned maintenance in winter and by buying back power from ferrochrome producers. As yet there have been no announced power backs this year, which is why the system is already so constrained in a summer month.
A higher than expected non-tax revenue increase of R10 billion this fiscal year has been used to provide an equivalent tax relief in the next fiscal with R9.25 billion going to individuals in terms of adjustments for fiscal drag and R1 billion for the employment tax incentive to companies.
Revenue is now expected to grow by 8.6% to R962.8 billion in 2014/15, while expenditure is forecast to increase by 8.9% to R1. 143 trillion.
The nominal GDP is forecast to climb by 9.4% to R3.79 trillion.
Gordhan on Monday also welcomed the G20’s stipulated growth targets.
“We welcome G20’s commitment to increase global output by $2 trillion and to increase jobs,” said Gordhan.
The Finance Minister also said that turnover tax regime will be amended to further reduce the tax burden on micro-enterprises.
Grants received by small and medium sized enterprises in South Africa will now be tax exempt, regardless of the source of funds.
South Africa moved to international best practice last year as it included extraordinary transactions (non-tax revenue) in government revenue. Excluding this line item, the deficit would be 2.9% in 2016/17, 3.7% in 2015/16, 4.1% in 2014/15, 4.4% in 2013/14 and 4.7% in 2012/13.
At this stage there is no mention of selling state assets such as the Post Office, which could be one way of closing the fiscal gap faster. Despite foreign selling of South African domestic bonds subsequent to the US Federal Reserve considering a tapering in its bond buying programme, non-residents in fact increased their holdings of South African domestic bonds to 36.4% of total bonds outstanding at the end of 2013 from 35.9% in 2012, 29.1% in 2011, 21.8% in 2010 and only 13.8% in 2009.
The government intends to issue foreign bonds at the rate of US$1.5 billion per year over the next few years. It will primarily issue in the currencies has liabilities, so no diversification in terms of foreign currency exposure is expected. The government’s gross exposure to foreign currency loans is only 9.3% of current total government debt and only 4.4% if offset by foreign exchange reserves of $8 billion.
The main spending priority is on infrastructure and that is expected to grow to R272.9 billion in 2014/15 from 252.6 billion in 2013/14 and R217.7 billion in 2012/13 and only R180 billion in 2010/11.
The largest portion of the spending by functional classification is on education, which receives a 5.5% increase to R253.8 billion. Health, Social Protection, Housing and Economic Affairs have similar budgets at R145.7 billion, R144.5 billion, R142.9 billion and R142.8 billion respectively, while Defence receives R47.9 billion and Science and Technology a minimal R18.7 billion.
Helmo Preuss in Pretoria for The BRICS Post