PARLIAMENT, October 26 (ANA) – Finance Minister Pravin Gordhan on Wednesday said the consolidated budget deficit forecast for the current financial year had risen to 3.4 percent, and announced steps to shrink it to 2.5 percent in three years’ time.
According to the medium-term budget policy statement, which the minister tabled in Parliament, steadily declining growth rates and tax revenue were hampering National Treasury’s stated aim of containing debt.
“Government’s efforts to reduce borrowing has been frustrated by consistent downward adjustments to growth and tax revenue,†the document said.
Treasury had to weigh the risks of sticking to its policy of fiscal consolidation, but said these were overshadowed by that of a further credit rating downgrade
“The consolidation measures proposed in the MTBPS are likely to have some dampening effect on economic activity.
“But over the medium term, a further loss of confidence and a ratings downgrade — which could prompt higher interest rates and large capital outflows — remain greater risks to the economy than the likely effects of fiscal consolidation.â€
In an effort to bring the deficit down to 2.5 percent of GDP in 2019/20, Gordhan proposed to cut the state’s spending ceiling by R10 billion in 2017/18 and R16 billion in 2018/19.
Secondly, taxes would be adjusted to generate an additional R13 billion in 2017/18 and again the following year to raise another R15 billion.
Gordhan said it was vital to boost economic growth to enable the government to rebuild fiscal base, and to find the money for expanding public services.
This would entail rapidly implementing structural reforms set out in the National Development Plan, he said.
A detailed fiscal risk statement attached to the MTBPS listed sluggish growth, the public wage bill and failing state-owned enterprises as the key concerns.
“The most significant risks over the next three years are lower-than-expected economic growth, higher than expected increases in compensation budgets, and the parlous finances of state-owned enterprises.â€
– African News Agency (ANA)
