Economic growth is set to get a big boost

Gordon Bell

Gordon Bell

Finance Minister Trevor Manuel is set to slash the 2006-07 budget deficit when he presents three-year spending plans today, aimed at raising economic growth .

The government has announced heavy spending on infrastructure for the next seven years to help raise yearly economic growth to at least 6 percent by 2010 to cut poverty.

Current growth of about 5 percent has made only a small dent in unemployment, estimated at 25,6 percent, leaving the black majority fuming.

Economists say the medium-term budget, which will set the tone for next year's budget, will point to well managed finances despite a likely cut in growth forecasts from February's budget.

"The budget deficit is negligible, the government's debt burden is small by any standard, and healthy tax collection supports the sustainability of this state of affairs," said Jac Laubscher, group economist at Sanlam.

The budget deficit would likely come in at less than 0,5 percent of gross domestic product, down from a previous estimate of 1,5 percent, analysts said.

"Once again, we are going to get a revision of the budget deficit, maybe even talk of a surplus," ETM analyst George Glynos said.

The South African Revenue Service announced last week tax collection was running R17billion over budget for the first 6 months of the fiscal year.

The anticipated extra cash will allow Manuel to either raise spending or cut taxes, but analysts say the state's capacity to spend efficiently is already being tested and tax cuts could encourage already high, and inflationary, consumer spending. - Reuters