Economic revival effort a patch job
Myview
IT’S obvious that the government approached the 2018 Budget from an extremely tight spot and with limited options.
The country has been staring at a perfect storm of low economic growth and widening fiscal deficits set against huge expectations and needs. These include fee-free higher education for poor students, troubled state-owned enterprises and a growing base of the unemployed.
The saving grace might have been the recent change in the presidency from the disastrous Jacob Zuma to the promising Cyril Ramaphosa.
The new president has triggered a wave of optimism and there are signs that the economy is picking up. This will be needed if the Treasury is to find a way of closing a revenue gap of R48.2 billion.
Finance Minister Malusi
Gigaba’s focus on free education and developing industrialists and small to medium-sized enterprises is to be welcomed.
But one gets the sense that without the right policies in place, this is more of the same.
Assuming the government is able to achieve the expenditure reduction of R85bn, fund the R57bn earmarked for higher education via increased VAT and marginal adjustments to personal income tax, the question remains: has it addressed the real reasons the country has been limping along? It all sounds like a patch-up job to me.
The increase in VAT from 14% to 15% is bad news, despite the promised offsets through social grants. VAT is generally known to be a regressive tax, which means it tends to hit the poor people the hardest.
On top of this, the Budget didn’t go far enough. Perhaps the finance minister was caught up in the euphoria of Ramaphosa’s widely welcomed State of the Nation address? Gigaba’s speech didn’t do enough to highlight the consequences of not doing what needs to be done.
He had a great opportunity to set the path, but there wasn’t an integrated outline about what was needed, and how the changes proposed would be implemented in a way that ensured they complemented one another. He had the chance to set the vision, but didn’t.
The budget is very thin on detail. The power utility Eskom is clearly a great concern as it was referred to early in the Budget speech.
The minister said: “We have demonstrated our resolve by strengthening Eskom’s board and management with highly capable, ethical and credible leadership.”
Other than a brief mention of SAA, Gigaba made no reference to other stressed state-owned enterprises such as the Passenger Rail Agency of South Africa and Denel. I was expecting more detail on how the government planned to sort out the state-owned enterprises mess.
The debt situation is frightening. The debt-service cost projections have gone up from R163.155bn in 2017/18 to R213.859bn in 2020/21.
Although he acknowledged government debt was on an unsustainable path, he didn’t give a clear outline of how the stabilisation of debt-to-gross domestic product at 56.2% of GDP in 2022/23 would be achieved. This was a case of kicking the can down the road.
Gigaba was bold in saying: “Stateowned enterprises are expected to fund their own operations.”
The only clue about how this would be achieved was that the government would help them develop robust turnaround plans. He also mentioned non-core assets could be sold, strategic equity partners brought in or capital injected.
This is all well and good. But the minister wasn’t clear about the time frame, who would drive the process or how it would be done.
The lack of detail doesn’t inspire confidence that there is a real political will to address the dire situation of state-owned enterprises.
Gigaba did touch on systemic issues such as high levels of corruption, but not credibly enough. He didn’t demonstrate loudly and clearly that the government wouldn’t tolerate any more transgressions in the running of public funds.
The fact that he has a cloud hanging over his head does not help the situation. One can’t help but wonder if his proposals can be taken seriously.
What people want to see is the minister drawing a line in the sand and making it abundantly clear it can no longer be crossed. As the person who controls the public purse, the message should have been loud and clear.
Ramaphosa has the opportunity to assemble the most respected cabinet this country has ever known.
The various summits he called for – such as the one on jobs – and the social compact he is intent on securing are essential to kick-start South Africa on a growth path that is able to realise inclusive economy and socio-economic transformation.
Skae is an associate professor and director of Rhodes Business School, Rhodes University.