S.Africa unveils tough budget amid weak outlook

South Africa finance minister Pravin Gordhan unveiled Wednesday a bootstraps budget of spending curbs and increased “sin taxes” for Africa’s largest economy, predicting slow growth and a swollen budget deficit.

Gordhan told parliament that growth would be a modest 2.7 percent this year and the government’s budget deficit would hit 5.2 percent amid “enormous” challenges facing the country.

“South Africa’s economic outlook is improving but it requires that we take a different trajectory to move it forward,” said Gordhan.

Growth had previously been forecast to hit 3.0 percent this year.

The minister said that a growing economy — and widening tax base — was the best way to address the budget shortfall.

“All of you must pay a little more tax thank you very much,” he said to mixed reactions from lawmakers.

But he admitted, “the growth outlook for the next three years has weakened, and government’s net debt is now expected to stabilise marginally higher than 40 percent of” gross domestic product.

To close the 16.3 billion rand ($1.8 billion) gap in tax revenue versus previous estimates, in the short term he announced cuts to planned spending of 10.4 billion rand ($1.2 billion) over three years.

He also announced an increase in fuel levies as well as taxes on beer, wines, spirits and tobacco, while announcing some tax incentives for consumers and youth employment.

A carbon tax will be increased from 2015.

More tax increases may well be on the way.

“There will be significant adjustments in revenue, which means that taxes may go up later,” he said.

Gordhan presented his 2013 budget under pressure to provide assurance on South Africa’s path after credit rating downgrades from all three major agencies in recent months.

After wildcat mining strikes last year put the brakes on the economy, the forecast falls far short of the state’s target of five percent to fight a stubbornly high official joblessness rate of 25.5 percent.

He also has to juggle a hefty social spending bill, which snaps up the bulk of the Treasury’s purse, and a blueprint of big infrastructure projects.