Lack of coherent policies and crime yet to be addressed

SA’s fiscal challenges are like an iceberg in the water ahead of a ship. President Cyril Ramaphosa, as the captain, and finance minister Tito Mboweni, as his navigator, need to make drastic decisions quickly, with the knowledge that they can’t see the full iceberg but need to budget for it.

The tip of the iceberg has now grown to R370.6bn, which is the ballooning budget deficit, and we need to reduce that to zero to start reducing debt effectively. The speed of climbing debt increases the speed of the ship. The iceberg remains — in the form of imploding water infrastructure, including sewage and river systems; state debt guarantees that are becoming state debt; and imploding municipalities, whose main income is from water and electricity, which are commodities they are losing quickly. Also, can we fix the electricity problem quickly enough?

The SA Institute of Chartered Accountants’ (Saica) main concern remains the continual increase in public expenditure in an economic environment that does not match its tax collections.

In the main, Wednesday’s budget does follow the same recipe as previous years by making nominal spending cuts and financing the difference through debt. It also relies on growth in GDP recovering to just over 1% from an estimate of 0.9%. Moody’s Investors Service, the most optimistic credit ratings agency, seems less convinced, estimating GDP at 0.7% for 2020 and 0.9% for 2021.

We do not see more measures to hold officials accountable for spending, and providing more value for spending. This remains a serious concern.

Two of the largest factors in our economic implosion have not been addressed, namely a coherent policy framework (not just macroeconomic) and a significant reduction in crime. The latter is even more important as you cannot implement policy and legislation changes that no-one adheres to or many actively undermine.

The 2020 state of the nation address had a few proposals but not a single coherent strategy, including reviewing the structure and performance of our whole criminal justice system. A small business, whether in retail, manufacturing or tourism, cannot survive in our current crime-ridden country if it cannot connect goods and services to customers in all areas. No child can learn in an unsafe environment, where schools are looted and destroyed, funds misappropriated and children robbed and murdered while living in the dark.

We require a coherent plan in this regard across all of government.

Saica agrees with Mboweni that all is not lost and we have overcome challenges before. We know what the challenges are, it just requires political will to start addressing them.

In this regard, there are positive signs in the budget that

Mboweni and Ramaphosa have started to listen and implement changes, which include:

● Moving to a low-rate, broadbase fiscal policy with enhanced tax simplicity. Ireland and New Zealand have both migrated from fiscal disaster in the 1980s to good and stable finances based on these principles;

● Fairly burdening taxpayers — and we welcome no substantial tax increases this year, though they may be unavoidable in the medium term;

● Creating certainty and transparency in the macroeconomic framework — and we hope broad consultation will inform this;

● Reducing borrowing costs by reducing debt, though only

R156bn over three years is too low, it is double the previous “austerity measures”; and

● Reducing the wage bill by R160bn over three years is welcomed. In reality, this is less than a 10% reduction of the consolidated wage bill, with R37bn already in 2021, but we need to also consider what we can bear.

Saica does hope that trade unions will constructively engage and participate. Saica believes that structurally the staffing in the government should be addressed and agree with trade unions of the necessity of a skills audit — if we have five personal assistants and one engineer when we need the opposite. Reducing the one engineer reduces the wage bill but does not structurally fix the problem.

It will be on everyone’s mind whether the government has done enough to convince Moody’s to retain its investment rating. The government is definitely making more of the right noises. However, looking at the revised estimates for national expenditure and its R23.5bn increase, Moody’s may not be convinced that SA has the fiscal discipline and political will to implement these plans, irrespective of how good they are. Saica hopes the government does and will.