TOUGH decisions may have to be taken to rein
in government spending if the economy continues to underperform, says
Finance Minister Pravin Gordhan.
The government has already announced significant cuts to spending and has raised taxes, and Gordhan’s latest comments at a South African Chamber of Commerce and Industry meeting on Tuesday suggest that even more spending cuts may be needed.
Although he did not specify whether the tough decisions involved more spending cuts or tax hikes, he said the Treasury would track developments between now and October to know what steps to take. That is when Gordhan will deliver the medium-term budget policy statement, when revisions to economic growth and budget deficit forecasts are made.
"When you have low growth, you normally have an impact on revenue and that might require further adjustments on the expenditure side. How and when and whether that is actually necessary will depend on the numbers as they emerge over the next few months," Gordhan said.
Room for fiscal and monetary stimulus was "fairly narrow".
The government has implemented spending cuts to reduce a large budget deficit that has often been cited by ratings agencies as a factor when they downgraded SA in the past. The success of fiscal consolidation, which entails reducing the budget deficit and spending prudently, coupled with programmes to enhance economic growth, will be instrumental if SA is to avoid a credit rating downgrade in five months’ time.
The Treasury believes the economy will grow 0.9% in 2016, while the International Monetary Fund (IMF) has cut its growth outlook from 0.6% to just 0.1%.
SA might beat the IMF’s forecast if the private sector could invest more, Gordhan said.
In its growth revision, the IMF again highlighted the need for structural reforms, particularly in education and labour.
The lack of structural reforms was hindering SA’s economic growth as it was a trigger to social risks, Citi Research economist Gina Schoeman said at a Loan Market Association conference on Tuesday. The structural problems that were in urgent need of reform were labour, energy and mining.
On labour reforms, the government is negotiating a national minimum wage with employers and workers, as well as whether to introduce secret strike ballots.
Gordhan said an improvement in business confidence and investment, the government’s continued commitment to fiscal consolidation and to the implementation of the nine-point plan, and tackling policy uncertainty were some of the factors that would give "more breathing space for SA for the growth numbers to begin to change over the next 18 months or so".
The government has already announced significant cuts to spending and has raised taxes, and Gordhan’s latest comments at a South African Chamber of Commerce and Industry meeting on Tuesday suggest that even more spending cuts may be needed.
Although he did not specify whether the tough decisions involved more spending cuts or tax hikes, he said the Treasury would track developments between now and October to know what steps to take. That is when Gordhan will deliver the medium-term budget policy statement, when revisions to economic growth and budget deficit forecasts are made.
"When you have low growth, you normally have an impact on revenue and that might require further adjustments on the expenditure side. How and when and whether that is actually necessary will depend on the numbers as they emerge over the next few months," Gordhan said.
Room for fiscal and monetary stimulus was "fairly narrow".
The government has implemented spending cuts to reduce a large budget deficit that has often been cited by ratings agencies as a factor when they downgraded SA in the past. The success of fiscal consolidation, which entails reducing the budget deficit and spending prudently, coupled with programmes to enhance economic growth, will be instrumental if SA is to avoid a credit rating downgrade in five months’ time.
The Treasury believes the economy will grow 0.9% in 2016, while the International Monetary Fund (IMF) has cut its growth outlook from 0.6% to just 0.1%.
SA might beat the IMF’s forecast if the private sector could invest more, Gordhan said.
In its growth revision, the IMF again highlighted the need for structural reforms, particularly in education and labour.
The lack of structural reforms was hindering SA’s economic growth as it was a trigger to social risks, Citi Research economist Gina Schoeman said at a Loan Market Association conference on Tuesday. The structural problems that were in urgent need of reform were labour, energy and mining.
On labour reforms, the government is negotiating a national minimum wage with employers and workers, as well as whether to introduce secret strike ballots.
Gordhan said an improvement in business confidence and investment, the government’s continued commitment to fiscal consolidation and to the implementation of the nine-point plan, and tackling policy uncertainty were some of the factors that would give "more breathing space for SA for the growth numbers to begin to change over the next 18 months or so".
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