Supplementary Budget 2020

Gordhan didn't do enough to avert junk rating - DA

Finance Minister Pravin Gordhan at the post-Cabinet briefing. (Photo: GCIS)
Finance Minister Pravin Gordhan at the post-Cabinet briefing. (Photo: GCIS)

Cape Town - Minister of Finance Pravin Gordhan has not done enough to avoid a sovereign ratings downgrade in South Africa, according to the Democratic Alliance.

DA shadow minister of finance David Maynier said in a statement after Gordhan's speech on Wednesday that rating agencies are monitoring several “risk areas” including economic growth, fiscal consolidation and the finances of state-owned enterprises. Measures to boost economic growth and create jobs in particular were lacking in the budget, he said.  

The DA believes the primary economic growth driver in the National Development Plan is infrastructure development, and that a total of 10% of gross domestic product should be spent on infrastructure development in terms of the National Development Plan.

However, the budget reveals that spending on infrastructure is below 10% of GDP and will actually decrease as a percentage of GDP between 2016/17 and 2018/19.

"We were also disappointed that the minister made no clear commitment to roll over the Employment Tax Incentive which lapses on January 1 2017. We will continue to fight for a speedy review of the Employment Tax Incentive and a roll-over of the Employment Tax Incentive between 2016/17 and 2018/19," Maynier said.

Fiscal consolidation

He also believes Gordhan fell short of his commitment to fiscal consolidation and instead introduced a mix of revenue raising measures, totalling R18.1bn. But there were no additional expenditure cuts in 2016/17. The result is a fiscal deficit of R139bn or 3.2% of GDP, which will be reduced over the medium term to 2.4% of GDP by 2018/19.

"Moreover, debt services costs have skyrocketed and are projected to be R147.7bn in 2016/17, R161.9bn in 2017/18 and R178.6bn in 2018/19.

"We were disappointed that instead of tax increases, the minister did not announce other revenue-raising measures such as the sale of non-strategic state assets, which could have raised billions in revenue.

"Also disappointing was that the minister did not announce real spending cuts, including reducing the size of President Jacob Zuma’s bloated cabinet, which could save up to R4.7bn.

State-owned enterprises

"We were pleased the minister announced that the finding of the Presidential Review Committee on State-Owned Entities would be implemented. We welcome the minister’s commitment to find an equity partner for SAA. However, we believe the minister should have gone further by announcing the privatisation of failing state-owned enterprises, including South African Airways," said Maynier.

Poor households

Maynier said another disappointment was that the budget only provides R147.4bn for 17.7 million grant beneficiaries in 2016/17.

This is an increase of only 7.5%, which is just above projected inflation of 6.8% but far below projected food price inflation, according to the South African Reserve Bank.

Immediate challenges

Maynier welcomed additional funding to higher education, namely R4.9bn in 2016/17, R5.6bn in 2017/18 and R5bn in 2018/19. "However, we were disappointed that the minister did not announce a further increase in funding for to provide for additional funding for students who qualify for funding through the National Student Financial Aid Scheme, and increases in university subsidies.

Drought relief

"We were shocked that the minister did not announce any significant additional funding to mitigate the disastrous consequences of the worst drought in recorded history.

"The estimates are that the immediate requirements amount to R4.2bn in 2016/17. Unless this issue is dealt with, there will be severe consequences for the availability and prices of food for all South Africans and particularly poor households.

In the final analysis Gordhan's capacity to do things differently was limited by the political space available inside the tripartite alliance, Maynier concluded.

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