Finance Minister Pravin Gordhan has generally been praised for what seemed like a fairly conservative and responsible approach towards managing fiscal policy through a difficult period. Left-wing and populist rhetoric did not really feature in his MTBPS speech, although the revised budget deficit is likely to more than double to 7,8% of GDP compared with the 3,9% that was proposed in February for the 2009/2010 fiscal year.
Government revenue is likely to remain in the region of 29% of GDP, which is slightly lower than the 30% projected previously, but solely due to the effect that the recession has had and will continue to have for another few quarters, on tax revenue. At least on this front it would appear that earlier commitments by Minister Trevor Manuel to cap the tax revenue as percentage of GDP at 25%, have been abandoned.
With a shrinking economy (in 2009) and nearly a million people that would potentially have lost their jobs by 2010, balancing the government's books will pose formidable challenges. Not only will the demand for social benefits increase, but tax collections from nearly all sources will fall short of expectations. In 2009/10, revenue will be around R82 billion less than the February Budget figure, while expenditure is anticipated to be higher to the tune of R7 bn. Apart from the fact that the deterioration in the fiscal numbers will mean a higher debt-to-GDP ratio for a number of years, debt servicing costs will once again become the fastest growing expenditure component, while reprioritisation of spending plans will remain high on government's agenda.
