Gordhan will contain government spending and raise the tax rates to be paid by well-off South Africans. He is also planning to make it harder for South African-based businesses to shift their profits offshore to avoid paying taxes in this country.
It is widely understood that there are limits to how far taxes can be raised, but in current circumstances it is preferable that Gordhan has chosen to raise taxes at the top end, rather than to increase borrowing. The latter would raise the very real risk of South Africa falling into a debt-trap, which would severely harm the prospects of our children and grandchildren.
The minister's rectitude will enable South Africa to retain a degree of policy sovereignty. He knows that if the country falls deeper into debt, its ability to determine its own policy direction will be compromised. Such a loss of policy sovereignty would limit the scope for interventions aimed at fundamentally improving the structure of the economy.
Gordhan has sent a clear message that government’s programme of radical economic transformation must be based on sound economic and constitutional principles. He understands that policies not based on sound economic and constitutional principles will be doomed to failure.
Given South Africa’s ongoing problem of economic and social exclusion, Gordhan seeks to use the budget to ensure that economic transformation programmes have the widest possible impact and touch the lives of millions of poor South Africans, and do not just enrich a few.
He reminded South Africa that about two-thirds of the budget each year, that is, in this year’s budget about R1trn out of R1-5trn total expenditure, is used for the realisation of social rights, such as, education, healthcare, social security, housing and water and sanitation services.
It is also hoped that the problems that have plagued the under-resourced higher education sector for the past few years will now be well on the way to being resolved, as government has allocated considerable additional resources to this sector.
Gordhan projects that the rate of economic growth in South Africa will rise from 0,5% in 2016 to 1,3% in 2017. Although this rate of growth is disappointing low, South Africans can take heart from the fact that some of the main inhibitors of growth that have haunted the economy over the past few years have receded, such as, low commodity prices, drought, industrial unrest and unreliable electricity supply.
Many would have praised Gordhan if he had used the opportunity of this year’s budget to announce some specific targets aimed at show improvements in the structure of South Africa’s economy, which remains one of the most unequal in the world. For example, he could have announced a numerical target for a reduction in income inequality or a target for increased employment levels, especially for young people.
Economic growth will only be possible if South Africa can lift its rate of economic growth and investment. It is heartening that Gordhan announced the a number of important growth enhancing interventions, such as, bringing certainty to mining regulation, implementing the switch from analogue to digital television, continuing the independent power producer programme, streamlining investment approval processes and safeguarding South Africa’s investment-grade rating.
Furthermore, the country will benefit if steps are taken to curtail overcharging and anti-competitive conduct by dominant entities. Gordhan has made it clear that anti-competitive and monopolistic practices by the banks and other large entities in the private and public sectors will not be tolerated.
Gordhan’s budget is a good one. It strikes the right balance – asking the rich to contribute a little more, while promising that government will redouble its commitment to using public resources more effectively to improve the lives of the poor and to transform South African into a more equitable society.
South Africans will take heart from Gordhan’s budget and will hope that the budget enjoys the full support of Cabinet and government in general.
