Overall, the Minister revised down his GDP growth estimate (especially for 2012 from 4.1% to 3.4%); including a downward revision to his growth estimate for fixed investment spending (for 2012 from 5.5% to 4.5%) - despite claiming that this is an “investment led budget”. It is clear that the performance of the SA economy has been negatively impacted by the poor global economic environment.
The estimate for the national deficit for 2001/12 has been revised up to -5.5% of GDP, compared with a budget of -5.3% of GDP. The projected deficits over the next couple of fiscal years have also been increased. For 2012/13 the budget deficit is now projected at -5.2% (was -4.8%), while for 2013/14 it is -4.5% (was -3.8%). The deficit estimate for 2014/15 is more encouraging at -3.3% of GDP, which sends the right message but much has to happen before that is achieved.
The estimate of tax revenue for 2011/12 has been reduced to reflect a projected revenue shortfall of R13 billion. Unfortunately, this shortfall could end-up being closer to R20 billion based on our own projections.
In order to reduce the budget deficit over the next 3 years the Minister has budgeted for revenue growth to average a fairly optimistic 11.0% a year (currently tax revenue is growing at around 7.4%); while the growth in government expenditure, which has experienced double-digit growth for a number of years, is projected to average a much reduced 8.4% a year for the next 3 years (with salary increases budgeted to rise by only 5% a year – which is not that realistic given the current upward trend in inflation). These projections appear somewhat optimistic given recent trends, implying that the government is likely to experience a higher budget deficit and larger borrowing requirement than is currently reflected in the MTBPS. Net government debt is forecast to reach 40% of GDP in fiscal 2015, which is still very respectable, but clearly contingent on the fairly optimistic revenue and expenditure projections.
The Minister is aiming to increasingly switch the focus of government expenditure initiatives away from consumption based spending to investment activity (including a R25 billion initiative to promote industry over the next 6 year). This is applauded, but the Minister is projecting that public sector infrastructure spending actually declines from 7.8% to 6.8% of GDP over the next three years.
There was little detail on the pending National Health Insurance, other than to indicate that National Health Insurance pilot projects will take place in 10 districts, in order to gauge the feasibility and scalability of proposals contained in the green paper.
