Hands off Bank contingency account, DA and ACDP warn
The DA is firmly opposed to the National Treasury resorting to the Reserve Bank’s gold and foreign exchange contingency reserve account (GFECRA) in a bid to stabilise SA’s finances.
There is speculation that finance minister Enoch Godongwana will announce that the Treasury plans to dip into the R500bn account, which contains the unrealised profits or losses incurred by the Reserve Bank on the country’s foreign exchange reserve holdings arising from changes in the value of the rand. Any net profit/loss in the GFECRA accrues to the government in terms of the SA Reserve Bank Act.
Outlining the DA’s alternative to the budget that Godongwana will table in parliament on
Wednesday, DA finance spokesperson Dion George emphasised the importance of the reserves to maintain monetary stability and investor confidence.
“Liquidating reserves for short-term gain risks inflationary pressures, undermines the credibility of monetary policy and signals fiscal irresponsibility to international markets,” the DA’s alternative budget document noted.
“Selling forex reserves would reduce the country’s reserves, which are already on the low side of adequate. The rainy day these are waiting for is when the currency needs support, not to plug a huge pre-election hole in the budget.
“Resorting to the GFECRA as a fiscal stopgap would diminish SA’s standing among global investors and suggest to policymakers the erroneous notion that fiscal discipline can be forsaken for expedient solutions. This will in no uncertain terms lead to runaway profligacy and further fiscal problems.”
ACDP chief whip Steve Swart was also concerned about the possible use of the GFECRA, saying it might create a dangerous precedent. He said his party did not support tax increases given the financial hardship experienced by households and businesses. The alternative, he said, was to cut expenditure by downsizing the government.
George was adamant that there would be no tax increases in a DA budget, not even to take account of fiscal drag, which is the effect of inflation on tax brackets, as this would impede economic growth and discourage investment.
The DA’s alternative budget would have about R403bn cut from government expenditure between 2024/25 and 2026/27. This would be achieved through a wage freeze for most public servants, a revamped procurement model, reducing the socalled “millionaire managers” in government, eliminating irregular, fruitless and wasteful expenditure, savings on debt service costs, and cutting expenditure on the Road Accident Fund, among other things.
George reiterated the DA’s call for an expansion of the zeroVAT rated food basket at an estimated cost of about R20bn.
There would be no bailouts for state-owned enterprises (SOEs) which have drained billions from the fiscus in the past. Neither would a DA government take on any SOE debt.
“Minister Godongwana’s ‘tough love’ commitment to rein in bailouts to rescue faltering SOEs has failed and this unsustainable practice continues unabated,” the DA’s budget document said.
The DA is adamant that the payment of social grants would be maintained and, in some cases, increased. “Due to the sheer number of South Africans living in absolute poverty, government spending on direct support to vulnerable households must be protected from cuts.”
Key to the DA’s proposals is enhanced economic growth fostered by a competitive, low-regulation market environment in which the government-imposed obstacles to growth are eliminated. This would replace what it says is the ANC’s “unworkable developmental state model that is characterised by rigid and often contradictory policies, a bloated public sector and severe domestic supply issues, most notably in the electricity and logistics sectors”.
The DA believes that with its policies, which will attract foreign investment, it can achieve 1.2%, 1.3% and 1.8% GDP growth over the next three years and a main budget balance as a percentage of GDP of 3.9% in 2024/25, 2.9% in 2025/26 and 1.5% in 2026/27, far more optimistic than the Treasury’s projections.
“The DA’s economic policy suite when implemented will accelerate the stabilisation of national debt and achieve fiscal consolidation. This can only be accomplished through catalysing and cultivating robust economic growth that surpasses the expectations under the current administration.”
Cape Town mayor Geordin Hill-Lewis (DA) called on Godongwana not to cut propoor grant funding to municipalities and provinces.
Cosatu called for a huge expansion of the presidential employment stimulus; an increase in the social relief of distress grant to recover value lost to inflation; a package of interventions, including debt relief, for Transnet; urgent interventions to stabilise and rebuild other embattled SOEs; and additional resources for key law enforcement organs to turn the tide against crime, corruption and tax evasion.
“What we cannot afford is another budget based on the delusion that our sole challenge ... is our debt level and to hope the economy will grow, unemployment will fall and public and municipal services will be rebuilt and SOEs be fixed by some divine miracle.”