Midterm budget: Will Gordhan find a rabbit in his hat?

25 OCT 2012 06:21 - NICKOLAUS BAUER Finance Minister Pravin Gordhan may be facing his toughest balancing act to date as he presents his medium-term budget policy statement in Parliament. OUR COVERAGE Experts: Zuma's land reform plans need ploughing Zuma's pay-freeze plan draws cold response Public sector: Wage hikes put growth in jeopardy SA's elite will not be making the sacrifices South Africa finds itself in perilous territory as economic activity is battling to recover from two successive credit rating downgrades following bloody industrial action in the mining sector. At the moment, investors are wary of increasing their financial concerns in South Africa and the rand has borne the brunt of this unease, recently falling to a three and a half-year low against the US dollar. South Africa is also experiencing the effects of a massive deficit, up to R69.9-billion in 2012 so far from R8.7-billion in 2011, and initial indications of effects from the recent strike action equate to an additional R2.5-billion burden on taxpayers from lost government revenue. Along with this, the country is faced with its second highest budget deficit since 1994 – a massive a 5.2% for the 2012/13 financial year – while overall government debt is fast approaching 40%. To further add to the economic woes, Europe – South Africa's second biggest trading partner – remains caught in the grips of a recession, dictating a depressed demand for South African goods. Jobs are also being shed, while employment opportunities are disappearing as growth forecasts, even those of government, are declining. "The situation is deteriorating fast," investment analyst at Absa Investments Chris Gilmour told the Mail & Guardian on Wednesday. "Our minister is caught between an awful lot of negative news and realities locally, along with global factors that are not promising." 'Tense nerves' Gilmour said the onus will be on Gordhan to "settle some tense nerves". "It will be down to him to provide assurance and direction but to be honest, I am not sure how," he added. Above anything though, Gordhan would need to provide details on how the fiscus plans to address the policy modifications President Jacob Zuma unveiled in recent weeks. After over 10 weeks of labour unrest in the country, Zuma tried to restore confidence in South Africa's economy by unveiling a wide-ranging plan devised by government, business and organised labour. Key to the president's proposals was production in the minerals sector being normalised as a matter of urgency. This would work in tandem with speeding up infrastructure development to accelerate overall economic growth, providing assistance to workers and companies affected by the current global economic slowdown, and the increase job creation through the public sector works programme. But in spite of an initial positive reaction to the plans, economic sentiment remained largely negative within the South African economy. Details Thus, potential investors would be looking to Gordhan to flesh out those ideas in monetary terms in his medium-term budget policy statement. In short, South Africa desperately needs some indication that government is taking concrete steps to address the current financial crisis the country finds itself in. "South Africa is in the eye of an economic storm," said Tim Harris, Democratic Alliance spokesperson for finance. "We have ended up here because the current national government, from the president down, has failed to speak with one voice on the economy and has been unable to steer us on a path of higher growth, despite our country's abundant assets." Harris said it was up to Gordhan to send a strong signal that debt levels will not be sent spiralling out of control in order to finance plans by government to rescue the economy. "Most importantly, he must show investors that he is firmly in charge of economic policy and that the government is able to implement a clear plan to ensure that South Africa is a place where they can do business," he added. Good luck, Gordhan Harris's concerns were echoed by Neren Rau, chief executive of the South African Chamber of Commerce and Industry. "We expect the minister to provide details on how government plans to fund the R4-trillion expenditure, along with the possible principles that will guide the private sector's involvement in infrastructure development," he said. The true test for Gordhan will be to think of a strategy to continue funding government expenditure – both social and economic. Merely raising the taxes of an already strained and narrow tax base would not be an immediate panacea, so it would be up to the minister to think of innovative ways to increase revenue. "Gordhan will have to pull out all the stops – a true rabbit out of the hat to rescue this situation. I wish him luck, because it sure as hell won't be easy," Gilmour said. The minister will deliver his medium-term budget policy statement in Parliament at 2pm. Mail & Guardian - - - - - COMMENTS BY SONNY If not a Rabbit - Then a nest of RABBITS!! THE INNER CIRCLE OF LUXURY!! The writing is on the wall - The ANC has overspent their budget on Ego's and Luxury!! Nothing on the Poor,Health, Learners, Students & Needy. Infra structure money comes from your pension funds. Your taxes go to personal refurbishing of homesteads and corrupt dealing and underhanded tender deals. South Africa will only survive once the ANC is defeated! THE GRAVY TRAIN WILL SOON COME TO AN ABRUPT HALT IN A SIDING.... IN NO MAN'S LAND!