Focus on Gordhan's 2014 National Budget Speech

Finance Minister Pravin Gordhan will present a plan that will focus on state expenditure, taxes, welfar, infrastructure and further managing budget deficit when he delivers his 2014-15 budget speech today in Parliament.

All eyes will be on Finance Minister Pravin Gordhan today when he delivers what most analysts already describe as what will be a “complex” budget.

This will be Gordhan’s fifth budget presentation since taking over from Trevor Manuel in May 2009.

South Africa Chamber of Commerce and Industry (Sacci) chief executive Neren Rau said last week that Gordhan should take a firm stance on managing the budget deficit in this year's budget.

"Sacci would like to a see a balance between spending on social priorities and on productive assets that support sustainable economic growth," he said on Friday.

A slower than expected economic growth and a weakened rand could also mean that Gordhan is in a tight spot, as he tries to balance the country's books.

Demands on the public purse are increasing, but the amount of money available is diminishing.

The weak rand made the cost of the government’s infrastructure building programme that much more expensive, but because the economy isn’t growing, there’s less money coming in by way of tax revenue.

With elections looming, raising VAT or general income tax isn’t an option, although high earners might be targeted. Some economists have said that today’s budget will likely be characterised by a tone responding to a lower GDP growth outlook.

Talk in the markets is that the upper end of South Africa’s tax bracket may be increased from 40% to either 42% or 45%, while value-added tax (VAT) could also be raised as the government desperately looks for more revenue.

However, the concern is that squeezing the 1% of taxpayers that contribute more than 50% of taxes, coming soon after the implementation of e-tolls and continued debilitating mining strikes, may not prove popular in an election year.

Economist from Meganomics Colen Garrow said on Tuesday that talk of increasing VAT had become a popular rumour for some time, but had never really been accepted as an option.

He said, however, government would this year want to get money from somewhere to balance its books, and his concern was that as increasing taxes would prove unpopular, the contingency reserve fund of about R10bn, set up under former finance minister Trevor Manuel, could be dipped in to.

The Democratic Alliance on Monday said it hoped the budget speech would contain steps to cut state spending and lower taxes in a bid to curb the national debt and stimulate the economy.

Senior wealth advisory relationship manager at RMB Private Bank Tony Barrett said the speech came at a difficult time for government and consumers. Last month’s interest rate increase, together with petrol price rises, are leaving the consumer under "ever increasing pressure". Yet government is also under immense pressure to bolster its coffers as expenditure increases and revenue declines. — The gap between revenue collections and expenditure of R700bn by January is more than 20% wide with only a few months left to balance books.

Mr Gordhan is expected to aim to convince credit rating agencies that he is not about to loosen the purse strings ahead of general elections on May 7. 

The consensus of 17 economists polled by Reuters is for Mr Gordhan to announce a deficit of 4.2% of gross domestic product (GDP) for the 2014-15 year, which begins on April 1 — slightly wider than the 4.1% target in October.

The government is under pressure to increase social spending for millions of people who are still living in poverty 20 years after the first democratic elections.

Both the finance ministry and South African Reserve Bank had previously expected GDP to grow 3% for 2014. In January the Bank cut that forecast to 2.8%, and Mr Gordhan is expected to make a similar reduction.

GDP growth for 2013 came in at 1.9%, Statistics South Africa said on Tuesday.

The rand was trading at more than R11/$ last week, although it regained some of its footing on Monday as some traders unwound long dollar positions.