Experts hope for more government spending cuts

Economists are hoping that given the weaker economy, which faces another blow with a possible international ratings downgrade, Finance Minister Pravin Gordhan will announce more government spending cuts in the medium-term budget today and shoot down President Jacob Zuma’s aspirations for a new plane.

Jannie Rossouw, head of economics at Wits University in Johannesburg, said he would like to see a reprioritisation of government expenditure and for Gordhan to outline where this was possible. A revenue shortfall was expected and to make ends meet, government had to spend less.

“I hope there is an announcement President Zuma has decided not to get the new presidential plane. That might be the thing that makes the country go up in flames at the moment. Really, there’s a lot of pushback against that, so that would be an example of expenditure cutback,” he said.

What people wanted to see in the budget would depend on their perspective, said Izak Odendaal of Old Mutual Multi-Managers.

“Amid a very difficult climate and great demands on the purse, you need to stick to the fiscal consolidation path. You need to get debt levels under control and gradually reduce the deficit, but not in a way you cut your spending so fast that you end up tipping the economy into a recession,” he said.

“Given the economy is weaker now than it was thought it would be back in February, there will have to be some spending cuts. There will have to be some increases in tax somewhere along the line – not right now – but in the three-year planning period.”

Odendaal said as far as ratings agencies were concerned, there would be a focus on what government was doing to get the economy back on track.

However, he said that cutting spending and hiking taxes could have a negative impact on growth and questioned how Gordhan planned to put reforms in place to stimulate activity. Iraj Abedian of Pan-African Capital Holdings said he was hoping economic growth, public sector capital formation, the restructuring of state-owned enterprises and the containment of inefficient spending would receive priority.

Economists were all in agreement the student fee protests and the cost to the fiscus had to be dealt with. “The minister must give us an indication of how government will address the #FeesMustFall challenge over the next three years,” Rossouw said.

Odendaal said what people wanted to see in the medium term budget depended on their perspective and in the students’ case it was for more financial support. “If you are a student out protesting on campus or the streets, you want to see a big allocation to higher education. That would be no fee increases or no fees at all, the latter of which is unlikely.”

Abedian said the minister would have the opportunity to “put figures” to government’s education policy over the next three years. “It is not the minister of finance’s job to deal with the #FeesMustFall issue.”

– Additional reporting by Denise Williams