Targeted budget deficit is achievable: Treasury

Friday, April 13, 2012

Pretoria - South Africa's targeted budget deficit is achievable, says Deputy Finance Minister Nhlanhla Nene.

The Deputy Minister was responding to scepticism over whether government's targeted budget deficit of 4.6% in 2012/13 is achievable.

"The end of the financial year revealed a preliminary deficit of only 4.5% for 2011/12. This was below the 4.8% we had anticipated in the Budget, largely a result of higher-than-anticipated customs receipts. This happy outcome should serve to allay the doubts of those who think the target for 2012/13 is not achievable," he said at a breakfast meeting on Thursday.

While it is important to note the deficit outcome for a particular year, the country should be concerned with the overall direction of public finances.

"We are confident that we are on a sustainable fiscal path," said Nene.

Anchoring the country's fiscal sustainability is a moderate real growth in public spending of 2.6% per annum over the next three years, which is "far below any reasonable estimate of GDP growth going forward".

South Africa is also committed to restoring a primary surplus while it also intends to fully cover its operational expenditure with its own revenue.

"Since the recession of 2008/09, government has been borrowing to finance spending on recurrent costs such as compensation of employees, and goods and services. From 2014/15, new borrowing will finance investment rather than consumption. This will require a shift in the composition of spending towards investment," he explained.

"It is against these anchors of fiscal policy rather than the deficit outcome for a particular year that we should judge the sustainability of the fiscus," said Nene.

The decision by rating agencies to place South Africa on a negative watch was not directly related to the country's fiscal policy.

"They are concerned with social and political factors, and the impact these might have on fiscal policy in the long term. It is worth noting that South Africa is not unique in this regard," said Nene.

In 2011 Moody's Investor service downgraded the stability rating of South African banks from "stable" to "negative".

"A generous interpretation might be that their brazen views on South African politics reflects a concern that threats to social cohesion are graver than in the OECD [Organisation for Economic Cooperation and Development] countries," explained the deputy minister.

He also expressed concern at the need to generate employment and growth, while adding that the size of the country's tax and transfer system was already large and its effect on alleviating poverty and reducing inequality was acknowledged.

Later in the year, National Treasury will publish a long-term fiscal report that considers the costs of current policies over the long-term against the backdrop of economic as well as demographic trends.

Treasury is also working on policy proposals concerning the financing of the National Health Insurance (NHI) and reforms to social security systems.

"Our fiscal house is in order. The most pressing challenge is our ability to spend efficiently the revenue we collect," Nene said.