Finance Minister Enoch Godongwana’s revised third Budget is a pragmatic one, given the current circumstances.
This is the view of Prof Raymond Parsons, economist from the North-West University (NWU) Business School. In commenting on the third Budget presented to Parliament on 21 May, Prof Parsons says that, as was stressed by the Finance Minister, various compromises and trade-offs have now been inevitable to achieve a workable balancing of the books that builds confidence.
“The commitment to spending reviews is also an essential one. The overall thrust of the third Budget shows a strong pivot in fiscal strategy towards growth and investment, which is where the basic solutions to South Africa’s public finance challenges ultimately lie. If fully implemented, the strong emphasis on infrastructural development bodes well for the 3% gross domestic product (GDP) growth in the medium term that is envisaged by the Government of National Unity (GNU).
Prof Parsons explains that both the role of Operation Vulindlela and the participation of private sector investment indeed remain indispensable to the successful delivery of key infrastructural outcomes, especially in transport, logistics, energy and water.
“The latest Budget has therefore provided a combined policy and project foundation on which to build South Africa’s fiscal sustainability over the longer term. With the debt-to-GDP ratio to be stabilised at a higher level of 77%, the margin for error continues to remain small. There are still future risks to fiscal policy – as is highlighted by the higher debt-to-GDP ratio and the warning that the 2027 Budget may have to consider new taxes.”
According to Prof Parsons, the good news is that this is now a GNU Budget, which is not only a plus for political stability, but should also ensure its subsequent passage through the various Parliamentary processes. He says what is also important to promote policy certainty is that the positive reforms in the Budget are speedily implemented and are also seen as irreversible. This includes the investment in the capacity of SARS to improve tax collection and revenues.
“The fact that the original assumption of 1,9% GDP growth this year that underpinned the Budget has been sharply reduced to 1,4% recognises the new global and domestic economic realities shaping South Africa’s growth prospects. While this assumption may still be on the optimistic side, the more conservative Treasury projection nonetheless simply confirms why the third Budget needed to be strongly growth-dominated.”
Prof Parsons explains that if South Africa wants to grow its tax base to enlarge its fiscal space, it needs a rapidly expanding economy in which job creation accelerates. “Taxpayers must see they are getting value for money, on which basis the Budget proposals need to win the trust and confidence of citizens,” he concludes.
