The conventional wisdom surrounding Finance Minister Pravin Gordhan’s inaugural Budget is that it was a sound ‘business as usual’ Budget, with few surprises. But closer analysis reveals a number of surprises, some of which could be considered unhappy ones.
The first surprise (happy for some, but unhappy for others) related to Gordhan’s “no change” announcement on monetary policy.
He said that the South African Reserve Bank would continue to target inflation within a range of 3% to 6%, while the bank would be allowed to pursue its mandate of protecting the value of the currency in the interests of sustainable economic growth, without “fear, favour or prejudice”.
The remarks were made against a background of calls for the nationalisation of the bank, which is one of a handful globally that has private shareholders, and suggestions that the inflation target either be scrapped entirely, or be elevated into a new band.
While business naturally welcomed the move, it was surprising on two counts. Firstly, it is unlikely that consumer price inflation is going to remain within the band over the next three years primarily because of the expectation that power prices will rise sharply over the period.
Secondly, given the new administration’s supposed association with left-wing forces within the highly fractious African National Congress-led alliance, and given the fact that the world would probably have been more than accepting of some adjustment on the monetary policy front, owing to the fact that many other countries have been taking some aggressive policy actions of their own, there was a real window of opportunity to kill two birds with one stone – a window that will probably have closed by this time next year.
Gordhan’s mostly business-as-usual stance with regard to the rand was probably less surprising, as most would agree that there is indeed “no silver bullet in the pursuit of greater [currency] competitiveness”.
The second somewhat surprising move related to policy shifts regarding two State-owned enterprises: the Pebble Bed Modular Rector (PBMR) Company and Transnet.
On the former, it was a simple pulling-of-the-rug exercise. After spending more than R8-billion on the programme between 2009 and 2010 to develop what is effectively a new-generation, fail-safe nuclear reactor, with both industrial process heat and power generation applications, funding will be cut from March 31, 2010.
A far-reaching restructuring programme has now been initiated, which will probably result in 75% of the company’s 800 highly skilled employees being retrenched.
From the outside, it seems to be a somewhat strange policy decision, given that nuclear energy is identified as one of the growth sectors by the Department of Trade and Industry (DTI) in the second version of its industrial policy action plan, or Ipap2, which is meant to create some 2,5-million jobs over the next decade. But even more, it appears to be a pretty shoddy business decision.
For one, it means that, instead of prettying up the enterprise for an eventual privatisation process, it now has all the makings of a fire sale. Instead of moving into a phase of seeking to harvest what has been a significant investment into people and potentially into an important technology, it is going to go cheap to the first willing bidder. It also means a probable exodus of many nuclear skills at a time when South Africa is likely to embark on a major, albeit conventional, nuclear programme.
Then there was the dramatic change in policy regarding whether State enterprises should be self-funding or not as has hitherto supposedly been the case. To be sure, the Budget has allocated an additional 7,5c/ℓ levy on both diesel and petrol to help fund the “security-of-supply component” of a new R12-billion pipeline from Durban to Johannesburg. The flow-through to the developer, Transnet Pipelines, has been capped at R4,5-billion, however.
No doubt, this was a welcome surprise for Transnet, which failed last year to convince the regulator that it should be allowed to prefund the pipeline through a 70%-plus adjustment to the pipeline tariff for 2009/10. For consumers, though, it is a somewhat unwelcome surprise.
Indeed, together with a range of other fuel-levy increases, which will be implemented from April 7, 2010, taxes as a percentage of the pump price will rise from 23% to 33,9% on petrol and to 31,3% on diesel for 2009/10.
Of concern, particularly in the context of a so-called competitive pipelines market, is the National Treasury’s confirmation that private pipeline developers would not be able to access the fuel levy, even in instances where they could prove that portions of their projects also met with the security-of-supply requirement. In fact, the National Treasury said that the levy would be exclusively for Transnet’s benefit, and should be seen as “shareholder recapitalising”.
Then there is the issue of industrial policy, which was one of the highlights of Gordhan address, but was only partially backed up by the numbers and appeared to be out of kilter with some of the other policy announcements made.
I have already alluded to the misalignment between the so-called Ipap2 and the developments surrounding the PBMR Company. Well, what about the fact that there is possibly a near cancelling out of the upscaled support for the automotive sector through the proposal to impose a carbon dioxide emission tax on new passenger vehicles?
On the one hand, government, through the DTI, is willing to fork out over R747-million in the upcoming fiscal period, R916,8-billion in 2011/12, and just over R1-billion in 2012/13 to support the automotive industry. On the other, it plans to impose, from September 1, 2010, a tax that the industry argues will push up vehicle prices by about 2% and add an additional tax burden of about R1,2-billion a year, based on 2010 projected new-car sales.
Add to that the fact that much of the industrial policy mandate appears to be somewhat unfunded or underfunded and a number of very unhappy surprises seem to be in store.
Where is the so-called monitoring and evaluation, Minister Chabane? Where is the planning, Minister Manuel? Where is the coordination, Minister Gordhan? And where, oh where, is the vision, President Zuma?