Despite concerns of so-called ‘fiscal slippage’ as a result of higher expenditure demands, slowing growth and a modest recovery in tax collections following the 2009 recession, South Africa has revised its budget deficit figure lower to 4.8% of gross domestic product (GDP) for 2011/12, from 5.5% announced in October’s mini-Budget.

The 5.5% figure had been revised upwards from an earlier estimate of 5.3% in response to what Finance Minister Pravin Gordhan described as a loss of growth momentum in the economy. He said at the time the accommodative fiscal stance was necessary to compensate for deterioration in business activity.

But in unveiling his third Budget in Parliament on Wednesday, which was also South Africa’s first to breach the R1-trillion mark, Gordhan said that the deficit was now likely come in at 4.6% of GDP in 2012/13, and fall to 4% in 2013/14, before retreating to 3% by 2014/15. He also said that public debt will stabilise at about 38% of GDP.

His news of economic growth, however, was far less rosy. He said real GDP growth was likely to fall to about 2.7% in 2012, well short of the 3.4% level forecast in October. “We expect a recovery to 3.6% and 4.2% growth in 2013 and 2014, but these are modest rates of expansion relative to the social and developmental challenges we face and the opportunities that our mineral wealth and human capabilities offer.”

In October, growth rates of 4.1% and 4.3% were estimated for 2013 and 2014.

Coming to the deficit’s aid was a R10-billion upward revision in the anticipated tax take for 2011/12. Although tax revenue was still slightly lower than the National Treasury’s estimate of February 2011, the revised estimate of R739-billion was higher than projected in the Medium-Term Budget Policy Statement of October 2011.

A public-sector borrowing requirement of 7.1% of GDP in 2011/12 equated to R213.8-billion, but would decline to 5%, or R200-billion in 2014/15. But Gordhan warned that it would rise rapidly again as the R3.2-trillion infrastructure programme accelerated.

SPENDING SHIFT

He reasserted the need to shift expenditure towards investment, rather than consumption activities, noting concerns over the sustainability of increases in the public-sector wage bill.

The associated Budget Review added that the substantial increases in social service spending and social grant transfers have improved welfare and reduced poverty. But, in the period ahead, budgeting would give greater emphasis to infrastructure, employment and economic growth.

“International experience demonstrates that higher levels of public and private investment in economic and social infrastructure promotes more rapid GDP growth, rising employment and per capita incomes, and a broadening of economic activity,” it stated.