Budget: curves and albatrosses

Government will have to decide whether its primary role is as a facilitator of an efficient economy, or as a participant and controller.

This decision could have a profound impact on SA’s growth prospects.

“There is little evidence from Finance Minister Tito Mboweni’s budget speech that government is willing to move away from its prevailing ideology to implement the necessary reforms which would put the economy on a growth trajectory,” says Andrew Duvenage, managing director of NFB Private Wealth Management.

Without these reforms, SA is headed for a sovereign debt crisis within the next four or five years, he said – and it will be a bitter pill for the ruling ANC to approach the IMF cap in hand.

Taxes

The tax relief was not unexpected, given that economic growth must be prioritised over any major tax adjustments. “It was also no surprise that there was no increase to VAT, given the poor state of the economy and most household’s constrained personal finances in the aftermath of the Covid-19 pandemic.”

Duvenage said SA could not tax its way out of the current debt situation. “SA has an inherently weak tax system: poor economic growth has allowed the focus of tax collection to shift from corporates to a highly concentrated personal income tax base.”

Lending to SOEs

“Despite Treasury’s tough talk regarding bailouts for state-owned enterprises (SOEs) and given the dire state of SA’s SOEs, there is the ever-present risk that SOEs will require more money. Ideologically, government has not been decisive about unbundling or privatising SOEs, with the result that these organisations remain the proverbial albatross around the country’s neck.”

Civil service expenditure

Duvenage said there was a big focus on cutting expenditure. “A significant element of this is the freeze on public sector wage increases for the next three years, a position which we knew the minister was unlikely to change his stance on. Had he buckled on this, it would have significantly weakened his position, particularly for negotiations around the next wage agreement period, which kicks in soon.”

By standing firm the minister is allowing the court process to play out. “It is possible that the court will rule against the minister and force government to honour the last year of the wage agreement, or that some kind of political compromise is reached in upcoming wage negotiations, whereby a portion of the final year of the last agreement is paid and, in return, the unions agree to accept lower wage increases going forward.”