Johannesburg - The medium-term budget is based on an unsustainable model of deficit spending, mounting government debt and onerous taxation, trade union Solidarity said on Wednesday.
Finance Minister Pravin Gordhan's medium-term budget policy statement fell short of sufficiently curbing the growth of the country's welfare state, Solidarity Research Institute senior economics researcher Piet le Roux said in a statement.
“It is disheartening to hear Gordhan outline plans for continued expenditure on the so-called social wage that taxpayers have already realised long ago is wasteful and does not sustainably improve living standards in South Africa.”
Le Roux pointed to the fragility of the country's national debt situation. Government debt had been rising over the past 10 years, particularly in the past four years.
“It now totals R1.6 trillion, not including direct government debt guarantees for financially unsound organisations like Sanral, Transnet, SAA and Eskom,” he said.
“While the current environment of unusually low interest rates means that the government debt service cost, as a percentage of government revenue, is currently only 10 percent, there is in fact a significant risk in the event of any normalisation of interest rates.”
If interest rates returned to the same levels as a decade ago, government debt service cost, as a percentage of government revenue, could rise to about 17 percent.
This would be tough to bear and would hurt the economy in the form of higher taxes or higher inflation, said Le Roux.
Solidarity said it was disappointed that Gordhan had not engaged the union on its proposal earlier this year for tax rebates for expenditure relating to personal security.
“Solidarity remains convinced that taxpayers should be given relief from what appears to be an ever-increasing tax bill,” the union said. - Sapa