Plan: what plan?

SCANT DETAILS: TASK TEAM TO DEVELOP PROPOSALS

As per capita income is falling, Treasury acknowledges tax hikes could be counterproductive. Moneyweb

In the face of the worst numbers since the first decade of the new century, what investors and ratings agencies are looking for is clear evidence of a credible plan to grow the economy, cut spending and contain debt.

In his medium-term budget policy statement (MTBPS) Finance Minister Malusi Gigaba spoke about the need to “rise to the occasion”, the need for “decisive action” and to make the “hard choices” necessary to return the public finances to sustainability.

“Ultimately, it is not perpetual fiscal consolidation that South Africa needs, it is a new path altogether,” he told media before the budget briefing. “A path that will reduce government debt, reduce state-owner-enterprises’ (SOEs) instability, reduce contingent liabilities and restore contingency reserves.”

The path he’s describing is informed by a great deal of idealism: “We were once one of the world’s greatest mining countries, we can be that again,” he told parliament.

However, the MTBPS provided few clues as to how government plans to achieve these goals. Providing scant consolation to investors and credit ratings agencies is the fact that government remains committed to a path of fiscal consolidation and maintenance of the expenditure ceiling. Unfortunately, the latter will be breached (by R3.7 billion) as a result of R13.7 billion invested in the recapitalisation of SAA and the Post Office.

This is where the sale of government assets comes in. Treasury is determined the expenditure ceiling will remain intact and the sale of a portion of its Telkom shares is firmly on the table. It also seems that partial privatisation of SOEs, such as SAA, is also back on the table.

“We don’t need to own 100% of something with zero value. Owning 55% of something with value is not rocket science,” Deputy Finance Minister Sfiso Buthelezi said.

“The private sector has a role to play. First, though, we need to deal with the trust deficit.” The numbers don’t lie. The consolidated budget deficit will widen to 4.3% of GDP in 201718 against the target set of 3.1% of GDP. This is to be expected in a country where per capita income is stagnating, GDP is barely growing and government expenditure is growing 7.3%. Expenditure will rise from R1.6 trillion to R1.9 trillion in 2020-21. The only way to fix this is to cut expenditure or raise revenue.

Treasury is between a rock and a hard place in this regard, acknowledging that cutting expenditure is risky with government departments struggling to achieve desired outcomes on current budget allocations. Given that per capita income is falling, Treasury acknowledged the economic impact of tax hikes could be equally counterproductive.

To deal with rising debt, a team of Cabinet ministers reporting directly to the president has been established to develop proposals to stabilise national debt over the medium term.

These will include proposals to narrow the deficit, stimulate economic growth and build investor confidence. They will report to the president ahead of the February budget in 2018.

That is the plan.

A path that will reduce government debt, reduce SOE instability, reduce contingent liabilities and restore contingency reserves.

Malusi Gigaba Finance minister