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SA Finance Minister Will Increase Borrowing

by Lorys Charalambous,, Cyprus

24 July 2009

The South African Minister of Finance, Pravin Gordhan, has delivered is budget vote speech.

Speaking to the National Assembly he said:

“This is either a very difficult moment to become a finance minister or a very opportune one, depending on one’s perspective. It is a testing time because the world is facing its deepest economic crisis in decades. South Africa is in its first recession in 17 years. Our revenue collection has weakened significantly and spending pressures are mounting.”

“After holding up reasonably well in the last year, our revenue collection has deteriorated in the first three months of this fiscal year. At the moment, we are about ZAR19bn below our benchmark target for revenue. If the present trend continues, we could be as much as ZAR50bn to ZAR60bn below our target by the end of the year. Assuming that spending stays as budgeted, our deficit will be higher than we estimated in February. Honourable Chairperson, it is too early in the fiscal year to make a reliable prediction of the fiscal outcome but it is already clear that spending will substantially exceed our revenue this year. We should remind ourselves that our fiscal position would have been far worse had we not had a surplus in 2007/08.”

“Because of our low debt to GDP ratio and our strong fiscal position, we can afford to maintain our present spending level and increase our borrowings to offset the revenue loss. We can maintain our spending level but we have to spend differently. We choose to do this because reducing our spending level now will add to the weakness in the economy and will impact to a greater degree on the poor and vulnerable. We have the fiscal space to maintain our spending by borrowing more today, but this space is not limitless and it has implications for how much room we have in the future.”

On the subject of compliance:

"SARS has a highly capable team of professionals who will increase its focus on tax compliance by intensifying risk management and increasing its audit capacity."

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