NewsSouthern AfricaSouth Africa minister presents budget amid economic pressure


Posted on Tuesday, 23 February 2016 11:56

South Africa minister presents budget amid economic pressure

By Crystal Orderson

South Africa’s Finance minister Pravin Gordhan is expected to announce far reaching cuts. Photo©ReutersSouth Africa's Finance minister Pravin Gordhan will present his eagerly awaited 2016 budget on Wednesday amid worsening fears of an economic meltdown in the country.

The budget is expected to introduce one of the most far reaching austerity measures since black majority rule in 1994.

A growing unemployment rate, job losses in the mining sector and a stagnating economy have put severe pressure on President Jacob Zuma's African National Congress (ANC).

To deal with the risk of a ratings downgrade, the minister should pursue aggressive fiscal consolidation

South Africa's economy is only expected to grow by 0.7 percent and Gordhan is expected to announce far reaching cuts on social spending and measures to reduce government's wage bill in response to the slow down.

Opposition Democratic Alliance (DA)'s shadow Finance minister David Maynier said Gordhan was in "a tight spot with very little fiscal space, and even less political space, available to respond to the economic crisis and the risk of a sovereign ratings downgrade in South Africa".

"To deal with the risk of a ratings downgrade, the minister should pursue aggressive fiscal consolidation, including raising revenue through asset sales rather than tax increases, including the sale of non-strategic liquid assets, such as the sale of government's stake in Telkom," he said.

Maynier said non-strategic immovable assets, such as land and buildings, which could raise billions of rands in revenue should also be sold off.

The Confederation of South African Trade Unions (Cosatu) advised the government to increase its economic stimuli and infrastructure investments.

"Our massive levels of unemployment, poverty and inequality are a ticking time bomb waiting to explode and are as a result of lack economic transformation and the only outcome for our failure to deal with unemployment will be social instability," Cosatu said.

Cosatu is against the privatisation of strategic assets but says "wasteful and unnecessary expenditure must be cut, like high salaries for parastatal CEOs, cars for ministers and the bloated ministries - a 75 member Cabinet".

However, the federation said proposed cuts must not be made at the expense of lowly paid public servants like nurses and teachers.

The DA said that in order to deal with high levels of unemployment, and give hope to young people who do not have jobs, "we believe the minister should review the implementation of the employment tax incentive and allocate funding to provide for the rollover of the employment tax incentive".

Analysts expect Gordhan to announce several belt-tightening measures, including a possible increase in taxation on high-earners, while trying to convince ratings agencies and foreign investors of government's seriousness in dealing with the economic problems.

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