South Africa’s finance minister tackles wastage, boosts confidence

South Africa’s Finance Minister Pravin Gordhan delivers his 2016 budget address to parliament in Cape Town. Reuters/Mike Hutchings

A great deal was at stake for South Africa when its Finance Minister Pravin Gordhan delivered his much-anticipated 2016 Budget speech. The political stakes for the governing African National Congress are high as it battles charges of corruption and a failure to deliver services to communities. The Conversation Africa Politics and Society editor Thabo Leshilo asked political scientist Keith Gottschalk to highlight the most important elements of the speech, and to assess whether Gordhan addressed the pressing challenges facing the country.

Corruption, spending cuts and education

First, the finance minister announced more stringent procedures for state tenders to ensure that there was transparency in the way they are awarded. This will make predation from “tenderpreneurs” - business people who enrich themselves through government tenders, often dubiously - and “political hyenas” - the country’s corrupt political elite - more difficult.

It has been estimated that funds lost to corruption in South Africa could well have increased to one-fifth of the budget.

Second, the minister announced that the budget deficit will be reduced each year for the next three years.

Gordhan’s formal qualification is as a pharmacist and it’s fair to say that he dispensed exactly the medicine ratings companies and credit agencies are watching for. The cuts on public sector travel, cars, accommodation, and conferences sends the right signals. The freeze on the hiring of public sector workers comprises the bulk of the freeze in expenditure. This will keep the Bretton Woods institutions at bay.

Third, Gordhan announced the two-decade overdue project to ensure that all schools are built of brick, and supplied with water and electricity. He also announced acceleration in the provision of early childhood development schooling. At the other end of the education spectrum he announced a substantial increase in funding for the National Student Financial Aid Scheme. This provides support for indigent students at colleges and universities.

Skillful tax hikes

Fourth, the finance minister committed to unspecified reductions in the cost of doing business, and regulatory challenges that deter investors.

Fifth, there is no increase in VAT. He took this decision in a year in which working class families will be hit badly by inflation as food prices rise due to both the drought and the decline of the rand’s exchange rates.

Instead, Gordhan fell back on that favourite of the Dutch East Indies Company - excise duties. New levies on sugar and tyres, and higher levies on fuel and plastics.

Overall, his team has skillfully cut expenditure and raised taxes where it will hurt least. The paragraph seeking to rationalise and privatise certain state-owned enterprises will help concentrate the mind of South African Airways, the troubled national airline.

*This article has been republished to correct a misattribution.

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