AIDC's Budget Statement: "It's Full Circle Back to GEAR"
No-one can accuse Finance Minister Pravin Gordhan of producing an election-year people's budget. This is a budget for the rich, the financiers, investors and credit rating agencies.
The Minister went out of his way to reassure the "market" that SA is good for business. This means social instability, service delivery protests and strikes have failed to move the ANC government. The government is moved by the "market" and the market alone.
On the one hand there is a slew of tax incentives and tax relief for the wealthy sections of society in this year's budget. All the pre-budget speculation of tax increases for the rich came to nothing. On the other hand, a real cut in such desperately needed welfare as in the child support grant and real cuts in other areas of social support.
Important policy interventions such as the National Health Insurance and the Carbon tax are once again postponed. Private healthcare conglomerates and the Energy Intensive Users Group (Anglo America, BHP Billiton, ArcelorMittal, SASOL, etc.) are smiling all the way to the tax havens.
While real public spending is projected to grow in the coming years at just 1.8%, the GDP is expected to grow by 3.2% on the average. Consequently, the public sector share of the whole economy will shrink. Even in the face of growing social unrest, Gordhan has been able to demonstrate to the world of big business that the ANC government is able to reign in public spending. This may have to do with the ANC's seeming success in ensuring control of COSATU by President Zuma's allies thereby taming and muting the Federation.
The credit rating agencies are also smiling. For how long remains to be seen. Gordhan announced a lower budget deficit of just 4% (read less expenditure for the social sector / poor) and projected this to be further slashed to just 2.8% by 2016/17 - below the European Union's 3% slogan or benchmark.
The government continues to resist insulating itself from the global crisis as if no lessons were learnt from the 2008 financial crisis. It continues with exchange control liberalisation, business deregulation and the SA Reserve Bank has put itself on a trajectory of interest rate hikes - something the Minister endorses but which should be unthinkable when official unemployment rate is close to 25%.
This policy stands in contradiction of projections of GDP growth and growing private investment. The pipe dreams of the GEAR targets come to mind. Indeed, the government is full-circle back to GEAR.
Statement issued by Dick Forslund, Economist & Researcher, Alternative Information & Development Centre, (AIDC), February 27 2014
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