Everyone is praising Gordhan's budget. My read is very different.

Pravin Gordhan delivers his budget speech. Picture: REUTERS

'Many politicians and analysts don’t like to hear it but the government has maxed out the economy’s revenue-creating capacity'

Addressing a conference on small business in 1986 Ronald Reagan said, “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it”. That sentiment ran through much of last week’s budget speech and explains why we have not gone along with the many analyses appearing in the media that the Minister of Finance did well to deliver a considered budget in the best interests of the economy and the people of South Africa. Our read is very different.

Government expenditure now accounts for more than 30% of GDP. Our data extends back to the 1960s, and, until 2013/14, expenditure had never breached the 30% level. Even as the economy was collapsing around the ears of the National Party government in the 1980s, expenditure levels only twice exceeded 26% of GDP.

Revenue is projected to breach the 30% mark in 2019/20 for the first time on record. In the mid-2000s, when the economy grew most strongly, the figure averaged around 23%. Yet even with corporate taxes now accounting for less than half the revenue collected from individuals, the minister announced that State-owned companies are projected to receive over R400 billion in the period to 2019/20 or 45% of all public sector infrastructure expenditure. Provinces and local government will receive around 40% between them. Some of this will, of course, filter into the private sector, but only via the now ubiquitous patronage and corruption networks. Only 1.7% of public infrastructure expenditure has been explicitly budgeted for public-private partnerships.

The minister forecasts the budget deficit whittling its way down to -2.6% of GDP by 2019/20. But that is contingent on the economy achieving the Treasury’s growth forecasts and the receiver of revenue achieving his collection forecasts. In recent years, Treasury growth estimates have tended to be far too optimistic, while concerns have been raised about efficiencies at the SARS. Policy in areas ranging from agriculture to mining is becoming even more hostile and uncertain. Global conditions are quite unpredictable and South Africa has in any event uncoupled its growth trend from the global economic growth rate. Let any of the Treasury forecasts be wrong and the revenue shortfall will force the government into more tax hikes, more borrowing or austerity.

By Frans Cronje.

Full story at Business Live.