South Africa ‘crisis’ budget hikes taxes, targets state spending

South Africa’s finance minister hiked taxes and targeted what he called wasteful and corrupt government spending on Wednesday in a “crisis” budget aimed at staving off a ratings downgrade to junk status.

Africa’s most developed economy is struggling with shrinking growth, unemployment running at 25 percent, and widespread poverty.

“There is no doubt about the fact that we are in crisis,” minister Pravin Gordhan told a media conference ahead of his budget speech.

Presenting the budget to parliament he announced greater cooperation with the private sector in an effort to boost growth, which he forecast would drop to below one percent this year.

Although he did not use the word “privatisation”, the minister opened the way for private sector investment in under-performing state-owned enterprises.

These include the loss-making national carrier South African Airways, long a target of government critics.

Gordhan said the government would explore a merger of SAA with the state-owned SA Express airline “with a view to engaging with a potential minority equity partner.”

Privatisation has long been resisted by sections of the ruling African National Congress.

Increased taxes on excise duties, capital gains, fuel, sugary drinks, alcohol and tobacco and environmental levies are expected to bring in an extra 18 billion rand ($1.18 billion).

Personal income tax was not increased, but “current taxes on wealth are under review”, Gordhan said.

The government spending ceiling will be cut by 25 billion rand ($1.64 billion) over the next three years, mainly by trimming posts in the bloated public service.

Government corruption will be tackled through a crackdown on tender processes, while wasteful expenditure clamps will include a downgrade in the value of cars bought for politicians.

Abuses in the private sector will also be targeted.

“We will continue to act aggressively against the evasion of tax through transfer pricing abuses, misuse of tax treaties and illegal money flows”, Gordhan said.

At the same time he said steps were being taken to cut red tape for business investors, including the establishment of Invest South Africa as a partnership with the private sector.

Winning the confidence of the ratings agencies — which help determine how much countries pay to borrow money — was made more difficult when President Jacob Zuma shocked markets in December by firing two finance ministers within four days.

Gordhan, who was widely respected when he held the position from 2009 to 2014, was recalled in a panicked attempt to limit the damage to the country’s credibility.