Part of an almost R30bn tax revenue overrun this year would be used to build foreign exchange reserves while exchange controls were eased, both for individuals and companies, he said.
The news knocked the rand 1,7% weaker to R7,07 against the dollar, erasing some of the hefty gains over the past year which threaten the economy’s recovery.
Mr Gordhan’s medium-term budget policy statement made clear a tight rein would be kept on official purse-strings in the next three years, despite faster growth and higher tax revenue.
“Over the next three years, as the economy grows, the pace of government spending growth will moderate in a countercyclical fashion,” the Treasury said.
Without a slowdown in official spending, budgets would continue to be financed through borrowing instead of tax revenue.
This would eventually curb growth of new spending and create a rising debt burden for South Africans in the future, it warned.
Mr Gordhan’s statement will disappoint the left-wing allies of the African National Congress, which have demanded a more expansionist approach to boost growth and job creation.
The Treasury revised its growth forecasts for the economy up more than expected, predicting expansion of 3% this year and an acceleration to 4,4% in 2013.
But Mr Gordhan said growth would have to rise by more than 6% a year for a decade to achieve a goal of creating 5-million jobs.
“SA is doing well compared with the rest of the world, but we need to be very aware that we live in very uncertain times,” he said.
The economy shrank 1,8% last year, which marked its first recession since 1992, in step with the global downturn.
The highlight of the policy statement was measures to curb gains in the rand, which the Treasury said was about 12% above its average for the past decade.
The Reserve Bank said qualifying international companies with headquarters in SA would be able to raise and deploy capital offshore without the need for prior approval from January 1 2011 .
The limits on offshore portfolio investments by resident individual and pension fund investors will be raised, and the requirement that emigrants pay a 10% exit levy on blocked assets will be lifted.
There may be more steps taken, after assessing the rand’s reaction to current measures.
“Further steps to moderate the impact of capital flows on the economy will be considered, drawing on both international experience and assessment of the likely local impact,” Mr Gordhan said in a speech to Parliament.
SA’s authorities have so far said they are not in favour of taxing capital inflows, a measure deployed by other developing economies in a bid to stem gains in their currencies — a trend which erodes the competitiveness of their exports.
The Treasury also made clear that it would keep public sector wage hikes in check, budgeting for a 6,3% compensation increase over the next three years. That includes money for new jobs. But this year, a provision of R6,2bn had to be made for higher than expected pay costs for public sector workers.
“Disproportionate” wage increases unrelated to productivity trends in the economy would reduce capital and investment spending and “retard” growth and job creation, the Treasury said. A balance would have to be struck between providing a stimulus to the economy and reducing debt with the average real growth in noninterest government expenditure being kept to a moderate 2,7% a year over the next three years.
“As the economy recovers, government will tighten its stance to avoid pushing up interest rates and crowding private sector investment,” the policy statement read.
The Treasury revised its budget deficit for the current fiscal year down to 5,3% of gross domestic product compared with the 6,2% forecast at its February budget.
It has projected further falls to 4,6% (5%), 3,9% (4,1%) and 3,2% over the next three years.
The borrowing requirement for the 2010-11 fiscal year has been slashed to R140bn from the budget’s R175bn estimate.
The Treasury raised its growth forecasts to 3% for 2010, 3,5% for 2011, 4,1% for 2012 and 4,4% for 2013 — from the budget projections of 2,3%, 3,2% and 3,6% respectively. Mr Gordhan cautioned, however, that growth had slowed in the second half of this year and was still fragile.
Economic growth would also be supported over the medium term by a looser monetary policy, the Treasury said. Inflation was expected to be “subdued” and remain well within its official target range of 3%-6%.
It is forecast to average 4,4% this year, rising slowly to 4,7%, 5% and 5,2% in the next three years.
Source: Business Day
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