Gordhan delivers pre-election budget that appeals to the poor

Finance minister Pravin Gordhan delivered a pre-election budget today that was little more than a roster of achievements by the ANC government over the last five years. 

Government expects the economy to grow by 2,7% this year, rising to 3,5% in 2016. Gordhan placed some of the blame for the weak economy on international trends, and found something positive to say about the crashing rand - down 19% over the last year. This was, he said, beneficial for exporters, but it would make the cost of importing capital equipment more expensive. 

Godhan expects the budget deficit to drop to 4% of GDP by early 2014, and continue its downward trajectory from there. On this note, I enclose a graph brought to my attention by Chris Becker, an economist with ETM Analytics in Johannesburg, showing what happens to emerging market currencies running deficits, versus those running surpluses. It's clear the 4% deficit has to be brought under control much faster if we are to avoid more slippage in the rand.



Gordhan also expects investment to increase by about 5% a year and the current account deficit to average 5.8% of GDP over the medium term, "while consumer price inflation will return to levels within the target band between 2015 and 2016."

Here is a nutshell is an outline of key elements of the budget:

• The deficit will narrow to 2.8% of GDP over the medium term, and net debt will stabilise at about 45% of GDP in 2016/17.
• Consolidated non-interest spending will amount to R1.1 trillion in 2014/15, growing to R1.3 trillion in 2016/17, increasing by about 2% a year over the medium term.
• National government departments are allocated approximately 48% of available funds, provinces 43% and municipalities 9%.
• Capital spending is the fastest-growing component of expenditure, and is set to exceed inflation by over 4% a year.

Benefits to households

• The Budget provides R9.3 billion in income tax relief to households.
• Government will expand its employment programmes over the next three years and continue to support job creation by the private sector.
• Government will build 216 000 houses and connect 905 000 households to electricity over the medium term.
• The number of children receiving the child support grant will increase to 11.4 million.
• 433 schools will be rebuilt.

Support for businesses

• Increased support and tax relief for entrepreneurs and small businesses is proposed.
• Incentives for industry are strengthened, including funding for special economic zones.
• Nearly 500 000 subsistence and small-holder farmers will receive training and financial support.

Financial security

• Further steps will be taken to make sure South Africans have a secure income in retirement. Unnecessary costs in the system will be cut.
• Government has spent more than R100 billion on employment programmes over the past five years, including municipal and provincial spending. More than 4 million job opportunities were funded over this time. Allocations will continue to grow strongly, and 6 million job opportunities will be created over the next five years.
• Government spent R115 billion on higher education over the past five years, including R18.6 billion on the National Student Financial Aid Scheme (NSFAS). Allocations to the NSFAS amount to R19.4 billion over the next three years, and will assist over 500,000 students a year.
• R41 billion on HIV and Aids programmes have been spent over the past five years, and R43.5 billion is budgeted over the next three years. Some R39 billion was spent on 1 879 hospital and other health facility projects, and R26 billion is allocated over the medium term. 
• Spending on social assistance has risen from R75 billion in 2008/09 to R118 billion this year. The number of grant recipients has increased from 13.1 million in 2009 to 15.8 million today.
• Spending on infrastructure amounted to R1 trillion over the past five years and will be R847 billion over the next three years.
• Spending on human settlement programmes amounted to R70 billion over the past five years, contributing to 590,000 houses being built. 850 000 households were connected to electricity over this period.
• Spending on industrial incentives amounted to R22 billion over the past five years. R21.8 billion is budgeted for the MTEF period ahead. 128 projects have been approved under the Automotive Investment Scheme, and more than 460 companies have benefited from the Clothing and Textiles Competitiveness Programme.

Job creation

Job creation is to be accelerated through a variety of measures:

• Stepped up implementation of the expanded public works programme.
• Implementation of the Community Work Programme in every municipality by 2017.
• Introduction this year of the youth employment tax incentive, which in its first month has recorded 56 000 beneficiaries.
• Establishment of special economic zones, industrial incentives, and support for agriculture and labour-intensive sectors.
• Ramping-up of skills development and further education and training programmes.
• Housing investment, support for small and medium enterprises and the Jobs Fund partnerships with private and public sector development agencies.
• Proposals are being introduced to extend unemployment benefits from 238 to 365 days, on condition that claimants are actively seeking work.

Social assistance grants

The number of people eligible for grants is due to reach 16.5 million by 2016/17. The recent re-registration of grant recipients and the introduction of a new payment system have lowered the cost of administration. One million invalid beneficiaries were removed from the system. Social grants are meant for those who need them most.

Grant recipients will receive the following increases this year:

• The old age and disability grants will increase in April from R1270 a month to R1350,
• The foster care grant will increase from R800 to R830, and
• The child support grant will increase from R300 to R310 a month in April, and to R320 in October 2013.