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Gordhan Commits South Africa To Fiscal Stability

by Lorys Charalambous,, Cyprus

28 October 2013

The South African Minister of Finance Pravin Gordhan has presented his three-year Medium Term Budget Policy Statement to Parliament, setting out a framework for sustainable public finances and fiscal stability.

Despite the pressures facing South Africa's public finances as a result of external volatility and domestic spending pressures, the Government professes to be resolute in its commitment to fiscal discipline.

Gordhan confirmed that the Government's expenditure ceiling will remain in place for the next two years, and spending limits will be set in 2016-17. Implementation of the National Development Plan means that the Government will continue its commitment to support the economy, and it has taken decisions to provide fiscal space by curbing wasteful official consumption and reprioritizing its expenditure.

As a result of the weaker-than-expected economic growth projected to be between 1.4 percent and 3.5 percent of gross domestic product (GDP) over the next three years, after slowing down from 3.5 percent in 2011 to 2.5 percent in 2012, and being revised down to 2.1 percent in 2013, South Africa's fiscal stance is having to be reinforced.

As South Africa's budget deficit is expected to reach 4.2 percent in 2013-14, before declining slightly to 4.1 percent in 2014-15 and falling to 3 percent in 2016-17, Gordhan assured his audience that the country's debt-to-GDP ratio remains sustainable. The ratio has risen from 23 percent of GDP in 2007-8 to a projected 39.3 percent in 2013-14, but is expected to top out at around 44 percent of GDP in 2016-17.

Despite weaker economic growth than expected, Gordhan added that tax revenue collection has, so far, "demonstrated resilience." While forecast gross tax revenue for 2013-14 has been revised down marginally to ZAR895bn (USD91.2bn), personal income tax revenue still remains strong as a result of high wage settlements, and corporate income tax has been robust. In contrast, however, lower value added tax and excise duties point to reduced consumer demand and weaker income tax collection over the medium term.

Gordhan noted that he had, earlier this year, set up a Tax Review Committee to inquire into the role of the tax system in promoting inclusive economic growth, employment creation, development and fiscal sustainability, such as the tax incentives for industrial development projects amounting to ZAR10bn approved over the past three years, supporting investment amounting to ZAR35bn.

TAGS: South Africa | Finance | tax | economics | value added tax (VAT) | fiscal policy | gross domestic product (GDP) | budget | corporation tax | excise duty | ministry of finance | revenue statistics | individual income tax | Africa | Tax

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