OBG talks to Nhlanhla Nene, Minister of Finance

Interview: Nhlanhla Nene

How can be revenues be enhanced with fiscal tools?

NHLANHLA NENE: We are currently operating in a constrained fiscal environment and our current fiscal programme seeks to stabilise debt growth and restore fiscal sustainability. Weaker growth outcomes, higher inflation and rising interest rates will place additional pressures on this fiscal programme, but the expenditure ceiling identified in the 2014 budget remains in place and if this proves insufficient, the government would consider further expenditure and revenue measures to ensure sustainability. The Tax Review Committee (TRC) is examining aspects of the tax system and preparing reforms.

The committee’s agenda includes issues like the tax system’s impact on small and medium-sized enterprises, the effect of base erosion and profit shifting on the tax base, and the effectiveness of value-added, mining and wealth taxes. Notwithstanding the recommendations of the TRC, the government will have to make difficult choices and trade-offs in the period ahead, as there are limited resources available. This means that new priorities and programmes identified in the medium-term strategic framework (MTSF), the administration’s strategic plan for 2014-19, will largely be financed by shifting resources away from less urgent uses.

What is being done to narrow South Africa’s deficits?

NENE: To sustain the expansion of budgets over the longer term and ensure the sustainability of the current account, it is essential that we rebuild the momentum of growth in South Africa. Faster growth in the years ahead is both a key objective of the National Development Plan (NDP) and the MTSF, and a necessary condition to unlocking the resources needed to implement our plans. The government is working with the private sector and organised labour to achieve this.

The MTSF helps provide focus on the most urgently needed economic changes, which can unlock the structural constraints on growth. These include interventions to release infrastructure bottlenecks to improve exports, raise savings levels, increase competition and reduce the cost of doing business. South Africa’s fiscal framework is grounded in a sustainable, countercyclical approach to managing revenue and expenditure. Over the medium term, the government will balance support for economic recovery with fiscal consolidation. Key social and economic programmes, such as social grants, will be maintained, complemented by efforts to improve value for money. Spending will be contained over the medium-term expenditure framework period.

The government recognises that it is operating in a constrained fiscal environment. Our budget seeks to stabilise the growth of debt and restore fiscal sustainability. Weaker growth outcomes, higher inflation and rising interest rates will place pressure on this fiscal programme. The expenditure ceiling identified in the last budget remains in place and additional measures can be considered to meet our fiscal objectives, but to sustain the expansion of budgets over the longer term, it is essential we rebuild momentum of growth.

What impact will the roll-out of the NDP and infrastructure developments have on fiscal policy?

NENE: South Africa needs to grow at a faster pace and the structural reforms in the NDP are meant to achieve this. While the global economic outlook has improved moderately, South Africa cannot rely on external developments to alleviate domestic growth constraints. Progress requires more collaborative partnerships across our society. The NDP provides a strong platform for collaboration and the transition to a faster-growing, more inclusive economy. The plan promotes enhanced competitiveness, expanded infrastructure, greater spatial efficiency in growing cities and accelerated rural development. If we are to achieve these goals, we need a thriving private sector that employs about three-fourths of workers and accounts for more than two-thirds of investment and research expenditure. Infrastructure investment must focus on improving efficiency in production and services, and reduce business costs. Budget reforms are necessary to facilitate capital projects.