South Africa's economy will grow by 2.7 per cent in 2013 and accelerate to 3.8 per cent annually by 2015, Finance Minister Pravin Gordhan said Wednesday, but warned that may not be enough to avoid tough budget cuts. "South Africa's economic outlook is improving but requires that we actively pursue a different trajectory if we are to address the challenges ahead," he said during the annual budget address before parliament.
Gordhan said the government must improve education, ensure housing and increase economic competitiveness in order to create more jobs. National debt would be just above 40 per cent of gross domestic product (GDP) in 2013. The budget deficit for the past fiscal year was 5.2 per cent, an increase on previous estimates, but would drop to 3.1 per cent by 2015, Gordhan said.
He said the government would only be able to maintain the current tax rates and continue to invest as planned in infrastructure and services if economic growth reaches a level of 5 per cent expansion annually.
Deep spending cuts and tax increases would be needed if that target was not reached, the finance minister said. However, any cuts would not affect some 827 billion rand (93 billion dollars) already set aside for spending by government and state-owned companies to build infrastructure such as schools, health clinics and transport projects.
The 5-per-cent economic growth mark is also key, according to official estimates, for the creation of enough jobs to significantly bring down the unemployment rate, which is stuck at about 25 per cent.
Gordhan said the budget was designed to match the National Development Plan, a roadmap for developing South Africa over the next two decades which has been accepted by major political parties and business leaders. Spending on social services would continue to increase in the coming year, Gordhan said, as it has in previous years. The minister said these expenses were improving living standards.
The government would increase "sin taxes" on alcohol and tobacco, and raise the levies on fuel. Companies selling e-books, music and other digital goods and services could face value added taxes, in line with recent moves in the European Union.
Europe and the United States remain the country's main trading partners, but the government will be looking to expand relations with African nations and the BRICS group of key emerging economies, the finance minister said.
South Africa will host the next BRICS summit in Durban in March and has invited African leaders, in addition to the other member states: Brazil, Russia, India and China.
South Africa's credit rating was downgraded last year by the major agencies, but the outlook for Africa's largest economy is largely stable and analysts say further downgrades are unlikely in the near term.