Nhlanhla Nene, Minister of Finance: Interview

Interview: Nhlanhla Nene

What financing mechanisms can be utilised to enhance revenues and narrow the budget deficit?

NHLANHLA NENE: South Africa’s fiscal policy focuses on revenue enhancement and expenditure sustainability. As noted in the 2015 budget speech, we are operating in a constrained fiscal environment and as such our fiscal programme seeks to stabilise debt growth and restore fiscal sustainability.

Over the past 5-6 years we’ve been able to benefit from buoyant reserves that sustained us even during the global financial crisis of 2008. However, we reached a point where our counter-cyclical fiscal policy, which was mainly expansionary, could not be sustained any longer. For that reason we took the decision to create that fiscal space again. We had wanted to take advantage of the lower oil price, which has led to lower petrol prices. As a result we implemented the fuel levy, but we also needed to finance the road accident fund. We have had a comfortable period where we were mainly giving refunds back to the taxpayers in terms of personal income tax. We took advantage of that and increased personal income tax by just 1% in the middle- to higher-income brackets, while continuing to protect the lower income brackets.

We also have the Davis Tax Committee working on proposals. At a time when the economy isn’t performing well it did not seem proper to tighten too much on the tax side. If you over tax an economy that is slightly constrained you can add to the burden. Whilst we would want to raise taxes, we are also increasingly trying to bring more people into economic activity by promoting small and medium-sized enterprises, for which we have reduced administrative burdens. We are also looking at providing tax incentives for the Special Economic Zones in order for them to create more jobs and promote economic growth. We need to broaden the tax base while using incentives to reduce the tax burden to some extent. We are also closing leakages and tightening reporting mechanisms.

To what extent have spending plans been affected by the need for financial assistance to struggling state-owned enterprises (SOEs)?

NENE: There is a concerted programme to address the financial sustainability of our SOEs. We have made it clear that there will not be any bailouts for SOEs that will have an impact on our fiscal deficit; any support would have to be deficit-neutral. The rescue package for Eskom, for example, is an equity injection being supported by the sale of non-core state assets. Other SOEs we are working with include South African Airways and the South African Post Office.

How can the government finance structural reforms without negatively impacting fiscal policy?

NENE: The idea behind the development of public infrastructure projects under the Strategic Integrated Projects plan is to establish catalytic ventures with the best potential for success in the private sector. Over the past five years the government has invested over R1trn ($86.4bn) in infrastructure but with minimal use of the private sector. However, we are now seeing more private sector involvement in renewable energy through independent power producers. When you work with the private sector, they can help identify the skills the economy requires, as well as direct where investment should be going.

How much scope is there for spending on welfare?

NENE: We need to create employment in order to reduce or eliminate poverty. Our growth in social security investment is a result of the high levels of poverty. While we need to grow the economy, we have a duty to create employment, as there are people who are already trapped in poverty that the state has a responsibility to. We have begun to spend in areas like education and health that have a social return rather than using fund transfers. We are also promoting self-sustainability for the poorer communities.