High expectations ahead of Gordhan 2012 budget speech

Pravin Gordhan: Finance Minister

With just hours to go before Finance Minister Pravin Gordhan delivers his speech, All eyes will be on the Minister as he delivers his 2012 Budget Speech in the National Assembly today.

The Euro crisis is still lingering and local growth prospects may have last month been slashed but Gordhan is likely to highlight the hope that new infrastructure projects and other measures to boost investment will create the jobs the country badly needs.

The Reserve Bank and the International Monetary Fund (IMF) cut South Africa’s growth prospects for 2012 in January to 2.8% and 2.5% respectively – down from the 3.4% that Gordhan predicted in his Medium-Term Budget Policy Statement (MTBPS).

While South Africans can expect the usual hike in excise taxes, what many will be looking out for is an announcement on how the country will fund the infrastructure mega-projects announced by President Jacob Zuma in his State of the Nation Address earlier this month. 

Close attention is expected to be paid to South Africa’s slowly increasing public sector wage bill – which now makes up 42% of government revenue, up from 31% four years ago and the country’s deficit – which is currently at 5.5% of gross domestic product (GDP).

Many are also looking for news on the youth wage subsidy that was announced in Gordhan’s budget speech last year.

Gordhan will also likely discuss progress and challenges the country faces in meeting the New Growth Path’s target to create five million jobs by 2020.

Employment may have increased in the last quarter and unemployment eased to 23.9% from 25.7% in the second quarter of last year, but it is still far from the New Growth Path’s aim of lowering it to 15% by 2020.

Added to this, according to the SA Institute of Race Relations, the net employment in South Africa over the last decade has only been 624 000 jobs – a mere 0.5% increase in the number of jobs per year since 2001.

In keeping with Zuma’s State of the Nation Address to get South Africa working, Gordhan may also touch on the government’s reindustrialisation plans, after announcing several initiatives to assist the manufacturing sector in the MTBPS in October last year.

The plans include the provision of R25 billion over the next six years to stimulate industrial development zones, boost investments in enterprises and job creation, support green initiatives and to get the private sector to partner with the public sector to invest in infrastructure. 

The department in January unveiled a new Bill to develop Special Economic Zones and public sector organisations will be key in the roll out of the key infrastructure projects announced by Zuma earlier this month – Transnet alone will spend R300 billion on new infrastructure over the next seven years. 

Gordhan could also introduce measures to assist the mining sector, which he indicated in the MTBPS, had failed to capitalise on escalating commodity prices and had performed poorly in recent years when compared to the mining sectors of countries such as Brazil, Chile and Australia.

South Africans will also be eager to learn more about how the National Health Insurance (NHI) system will be funded.

In October, Gordhan revealed that about R500 million is expected to be set aside in the 2012 Budget to fund pilot sites for the NHI.

The Department of Health has meanwhile begun an audit on health facilities in preparation of the NHI system – and Health Minister Aaron Motsoaledi last week reported that 3 336 of the department’s 4 200 health facilities had been visited so far.

Consumers will also be looking out for an announcement on the inflation rate, which on the back of rising food and petrol prices, increased from 3.2% in to 6.1% in December last year.

Tax payers will also be holding out to hear what tax cuts, if any, there will be in the 2012 Budget.

Last year, Gordhan announced tax relief for individuals amounting to R8.1 billion.