The National Budget

Pravin GordhanRecently, Finance Minister Pravin Gordhan made his annual budget speech at parliament. This annual event, which draws special guests from the realms of business and government as well as the media, allows the Minister to address the nation and update all of us on the government’s finances.

The Minister’s speech serves as an executive summary of the government’s spending plans for the year ahead, and also addresses the issue of revenue collection. For the year 2011, as in 2010, the government will be spending more than it has managed to collect – this is known as a budget deficit. With governments around the world reporting deficits, particularly in developed countries that are still recovering from the financial crisis, economists greeted South Africa’s budget shortfall with some concern.

A common theme in economics today deals with understanding the causes of government deficits. While many developed nations have amassed debts related to bank bailouts and stimulus packages – the US being a prime example – South Africa’s deficit may be attributed to two major factors:

  1. A burgeoning social welfare bill that assists one in four citizens on the expense side of the budget, and
  2. A tax base (the number of citizens who pay income tax) that is very small compared to the size of the working population.

As a result, the government is keen to collect as much revenue as possible, with individual and corporate taxpayers bearing a large part of the burden. The Minister’s announcement of several tax breaks for income tax payers was therefore received with some relief.

Whether South Africa should pursue a welfare state model or not is the topic of much debate. With our national debt set to reach R1 Trillion next year however, we may all reach our own conclusions.

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