CAPE TOWN – The litmus test for the Minister of Finance Tito Mboweni’s first proper budget is whether state expenditure is reigned in substantially.
Drastic cuts to state expenditure, coupled with plans for privatisation of state-owned enterprises, is the only that way a fiscal crisis can be averted, and that the private sector can obtain enough resources for real economic growth.
So says Piet le Roux, the chief executive of Sakeliga, in the run-up to Mboweni’s Budget Speech.
Decrease budget deficit
“Our estimations point to the necessity of an urgent decrease in the budget deficit to at least under R100 billion, on the way to a balanced budget as last seen in 2008,” says Le Roux. “This implies that further bailouts for insolvent state-owned enterprises isn’t the right thing to do – the solution is urgent privatisation and cost-cutting.”
Le Roux emphasises the precarious position of the fiscus: “The state is under serious fiscal pressure. The temporary leeway afforded by higher tax income in the years before the financial crisis of 2008/9 is now exhausted (figure 1). Even without the large items not included on the government’s balance sheet, such as government guarantees of state-owned enterprise debt (e.g. Eskom), the state increased its debt levels with between R100 billion and almost R300 billion per year for the last decade (figure 2). To counter the looming fiscal crisis Mboweni would have to propose somehow bringing down the budget deficit to at least under R100 billion per year – that is, to pre-2012 levels.”
“When Mboweni excepted his position as minister of finance last year, Sakeliga suggested five questions to evaluate his budget. With the addition now of a sixth, these are still critical question to pose,” said Le Roux.
South African fiscal stress:
The questions include:
- Is there any explicit recognition of the intolerability of the budget deficit and a credible, significant plan to at least reduce it below R100 billion in the coming fiscal year?
- Is there going to be tax increases or tax relief?
- Is there a conservative appraisal of current tax revenue growth and a recognition that local and global economic forces may cause 2019 and 2020 revenue forecasts to be too optimistic?
- Is substantial state-owned enterprise privatisation proposed, instead of financial bailouts providing only temporary relief?
- Does the budget indicate a willingness on the part of the Ramaphosa administration to fundamentally scale back the size and scope of the state?
- Is the government willing, in light of the precarious fiscal position, to at least postpone its mooted range of harmful interventions that require significant expenditure and bring with it extensive risk to business and the public (e.g. the national health insurance scheme, compulsory investments for pension funds, the nationalisation of the Reserve Bank, the creation of a state bank, etc.)?
BUSINESS REPORT ONLINE