Gordhans baptism of fire

Finance Minister Pravin Gordhan has committed the government to massive borrowing to sustain spending on job creation, education, health, rural development and fighting crime – and a major crackdown to rein in wasteful state spending and corruption.

Dealing with a R70 billion shortfall in revenue from taxes – due to the recession – and increased demands for spending was “”something of a baptism of fire””, he said as he delivered his first Medium Term Budget policy statement in Parliament yesterday.

All too aware of speculation that his first major economic policy statement would show whether or not he had caved in to the ANCs allies on the left, Cosatu and the SACP, Gordhan outlined the governments spending priorities for the next three years that effectively translate into rands and cents the ANCs election manifesto promises.

Watched by President Jacob Zuma – as well as his predecessor, Trevor Manuel – Gordhan demonstrated a pragmatic approach and continuity, but said the South African economy had to be transformed to deal with the structural problems that caused deep-rooted poverty and huge inequality.

He said the government would raise about R640bn in debt over four years to cover investment in creating jobs, improving education and health care, boosting the fight against crime, and in rural development.

This would be done “”carefully”” so as not to burden future generations. While the national debt – and the costs of servicing it – would rise, borrowing would be reduced as the economy improved.

He paid tribute to Manuel – now Minister in the Presidency in charge of the national planning commission – saying this response to the economic crisis would not have been possible without his “”sound stewardship of our public finances, for so long””.

When the economic slump hit, the countrys finances had been in “”excellent health””. Other countries were borrowing to rescue banks and businesses, while South Africas increased spending would build road and rail links, new power stations, housing, water and sanitation.

Higher borrowing was “”the right thing to do”” – but a campaign against wasteful government spending would be “”vigorously”” conducted.

National departments had already identified savings of R14.5bn over the next three years, while about R12.6bn would come from “”redundant, ineffective or overpriced activities”” in provincial departments – a total saving of R27bn to go towards education, health and infrastructure.

“”In municipalities and government agencies… spending on unnecessary travel and entertainment, unfocused consultant contracts, procurement supplies at uncompetitive prices and layers of administrative paperwork that interfere with getting the job done will be cut,”” Gordhan said to applause.

TAXtalk: www.taxtalk.co.za.

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