In the Budget Speech on Wednesday, February 22th, Finance Minister Pravin Gordhan announced that the Treasury has managed to slash the budget deficit. Even so it could found a R1,1-trillion budget for the infrastructure and social programs outlined by President Jacob Zuma in his state of the nation address this month.

Gordhan believes that SA’s finances are in good health and the figures should reduce the chances of a downgrade in the country’s sovereign credit ranking.

There will be a tax break of R9,5bn to individuals and R6,4bn to companies, but the rich will be paying more in capital gains tax and withholding tax on dividends.

The budget deficit for 2011-12 is projected at 4,8% of gross domestic product, so even less then the 5,5% forecast in the October 2011 medium-term budget policy statement. Now it is expected to fall down to 3% by 2014-2015. One of the reasons is, that the Treasury assumes that the tax revenue for 2011-12 will be R10bn higher than expected.

Government spending is also expected to be R6,7bn below budget estimates.

Mr Gordhan said that growth will retreat from 3,1% in 2011 to 2,7% in 2012 before rising again to 3,6 % in 2013 and 4,2% in 2014.

Infrastructure spending was a highlight of the government’s R1,1-trillion budget for 2012-13. Over the next three years, budgeted infrastructure plans amount to R845bn. About R300bn is going to be spent in energy sector and R262bn in transport and logistics projects. Over this period public investment growth will average 4,3% a year.

The total resources of government, state-owned enterprises and development finance institutions amounted to R4,5-trillion over the next three years. But it will be critical building the state’s capacity to spend the money effectively. Mr. Gordhan admitted that there were “several weaknesses” in this regard and that in the past “spending has lagged behind plans”.

The treasury is also planning to restrain the public sector wage bill. The budget has made provision for a 5% cost of living adjustment for public servants in the coming year, exclusive of pay progression.

The treasury also sees average real growth in wages declining from 9,4% between 2007-08 and 2010-11 to 1% over the next three years.

The treasury sees its public sector borrowing requirement at 7,1% in 2012-13, falling to 6,2% and 5% in the following years – also lower than it had originally predicted.