Governments around the world had had to step in to weather the economic storms of recent years, including in South Africa where “government investment has kept our economy alive”, but it was now time for the private sector to come to the party, Finance Minister Pravin Gordhan said yesterday.
Addressing a post-Budget business breakfast, the minister said the government had replaced the private sector as the “key investor” and driver of growth in the economy, but it was longing to pass this mantle back to the private sector – but firms had not yet taken it up.
Referring to recent meetings of the Group of 20 finance ministers, he said at international meetings policymakers pondered the question of “when the handover is going to happen… to the private sector. That handover has not happened. The private sector in South Africa needs to come to the party now.”
While the government should “retreat” when the business sector was doing well, he said the private sector should be investing in innovation and “the real economy”. It should be avoiding investment in “speculative activity”, including via derivative instruments.
Asked whether the government had a key role to play in stimulating the economy, Gordhan said when the business cycle was down “the government has to step in… to keep the economy going”. In the post-2007 period, the government played a big part in stimulating the economy. “If that had not happened, we would have had much greater job losses.”
Gordhan told Bloomberg that Wednesday’s Budget had not played to the tunes of the rating agencies, but the Treasury had done what it was required to do: focus on achieving sustainable economic growth to reduce poverty.
At the breakfast, he reiterated the point that the government would not consider spending cuts to the point of austerity, which would hit the poor in their pockets. “Austerity alone does not give you growth,” Gordhan said.
Although the Budget had not hit taxpayers in their pockets either, he said, he was concerned by reduced government revenue. The state could only rely on the size of the tax base if economic growth improved. The Treasury would have “a better idea” about possible tax plans “in six months time”.
Pressed on whether this was a threat, he said he viewed it rather as “a reality call”. In his Budget speech on Wednesday, Gordhan said if there was not sufficient growth in the economy, the costs of implementing the National Health Insurance system would have to be financed by taxes.
Gordhan also cautioned those who believed in substantially weakening the rand to ostensibly boost exports and domestic manufacturing.
He said the recent depreciation of the rand to between R8.50 and R9 to the dollar had occurred at the same time as “extraordinarily high” crude oil prices of between $110 and $118 a barrel.
Asked why the government perpetuated poor service delivery, Gordhan said government ministers did not wake up in the morning and say: “Please continue with poor service delivery… that can’t be the case.”
He explained that many of the delivery problems were associated with local government. Their roots were at the “administrative or political level”. Many of the difficulties had to do with “the wrong appointment of people who don’t have the right skills for the positions they are in”.
However, the Treasury’s interventions in the training of key officials had elicited some results in improving financial management.