Nene faces tough budget delivery

Nene finds himself in the most difficult position of almost any finance minister over the past 20 years.

FILE: Minister of Finance Finance Nhlanhla. Picture: Sapa

CAPE TOWN - Finance Minister Nhlanhla Nene is set to deliver his first full budget in Parliament on Wednesday afternoon.

It's likely to be a trial by fire as Nene finds himself in the most difficult position of almost any finance minister over the past 20 years.

A sluggish economy and lower-than-expected revenue means he's faced with difficult choices.

A year ago, the economy was making a modest recovery from five years of recession and now it's in trouble again.

Faced with massive demands on the public purse, Nene has little choice but to raise taxes to find the money he needs.

Chief Economist at Pan African Investment Research, Iraj Abedian, says this too could take its toll.

"Raising taxes won't necessarily bring much revenue but it will further reduce the confidence in the economy and potentially, depending on which taxes they go for, could possibly also stop growth even further."

Analysts, investors and ratings agencies will be watching closely to see whether Nene cuts the rate of government spending to help close the budget deficit.

LISTEN: Chief Economist at Old Mutual Investment Group, Rian le Roux, says the most important thing to watch for tomorrow's budget is clear evidence of convincing fiscal consolidation.

WHAT WE COULD EXPECT:

Alternative measures have been proposed to increase South Africa's tax revenue without changing vat.

Reports suggest he may introduce a significant hike to the fuel levy in an attempt to address budget deficits.

With load shedding, labour disputes and unemployment plaguing the country's economy, it is reported that Nene will need an extra R12 billion to fund this year's budget.

Chief economist at Econometrix, Azar Jammine, on Tuesday said a list of innovative solutions to Eskom's power crisis should be a top priority, saying government should be looking at ways to finance the expansion of Eskom's facilities and rectify additional parastatal organisations that are undergoing traumatic experiences at this stage.

The cash-strapped parastatal needs billions to fund its massive build programme.

Economist Nazmeera Moola says any financial bailout for Eskom should come with conditions.

"I think what he is likely to do is provide some sort of solution for Eskom going forward but I would hope the solution the treasury will come to is conditional on Eskom sorting out its operational issues."

GDP SHOWS ECONOMY IS STRUGGLING

The latest GDP figures show that the economy is battling to grow.

Statistics South Africa said the country's economy grew by 1,5 percent last year, down from 2,2 percent in 2013.

Initially, a far better figure was expected for economic growth, but the frequent power cuts have drastically affected business.

Stats SA said eight of the 10 industry groups experienced some growth last year, while two industries shrank in size.

Agriculture expanded by 5,6 percent with government services coming in second place at three percent.

But economic activity within the mining and electricity industries decreased by 1,6 percent and 0,9 percent, while manufacturing showed very little change.

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