PRETORIA – The Minister of Finance Tito Mboweni is set to deliver his second Medium-term Budget Policy Statement. Normally the MTPBS each year is a bit of and disappointment as most of the press and financial analysts expect more from the Minister of Finance in terms of changes to economic policy and even announcement of taxes and or fiscal policy changes.
The origin of the MTBPS dates to 1997, when: “Parliament will for the first time in the history of this country consider a three-year budget for the national government.” The Statement does not constitute a new policy.
The MTBPS was created to give more insight on the expected government spending over the next three years and supportive of actions taken at the main budget the previous February. Normally one can expect no announcement on changes in economic policies or any new tax proposals but rather the details about the operational plan to give effect to existing policies.
This year it became crucial and must restore confidence.
Last year Minister Mboweni delivered his first MTBPS just two weeks after his appointment. He had the daunting task to try and restore calm and to address urgent issues on an economy that was on the brink of a recession, growing government debt and collapsing state-owned enterprises (SOE’s).
It was clear that it could not be the normal MTBPS rhetoric. The Minister indeed announced then that it was an opportunity to “restore trust between the government and society”. He tried in this manner by announcing that the government in its expenditure framework would attempt to implement President Cyril Ramaphosa’s five measures to stimulate the economy.
These are the implementation of growth-enhancing reforms, reprioritisation of public spending to support growth and job creation, enhancing infrastructure investment and establishing an infrastructure fund, assessing urgent and pressing matters in education and health and investing in municipal social infrastructure improvement.
Now a year later things still have not changed at ground level. The economy had one of its worst growth rates of -3.1 percent during the first quarter of 2019, with the jobless rate touching 305, with public spending that supports growth and job creation does not feature, nor the infrastructure fund and investment and although the new Health Insurance Plan was announced it stays sceptical and controversial and lastly municipalities stay in chaos.
The main issue, however, remains the SOE’s with no improvement in their financial positions with Eskom, the SABC and SAA technically bankrupt. Trust between government and society is now at its lowest and the Minister will have to restore confidence.
So, this year one can arguably say that it is the final attempt to bring about radical and transparent changes to the economy to prevent a total collapse.
The Minister has no choice but to give water-shedding insight towards a new economic strategy and the way forward to change the economy and public finance radically. Public expenditure and fiscal policy will never be the same after nine “lost years” of state capture.
Government debt is at its highest and cannot be extended. SOEs have come to a crossroad and the final nail in the coffin of the junk status by Moody’s looming.
The message the country needs from this MTBPS is easy: Reform the SOEs, cut public expenditure and reduce the government salary bill noticeably. If not, the economy will follow a path of chaos, with substantial effects on welfare and an exodus of skilled labour and a Zimbabwe-style of hyperinflation.
Governments debt and level of expenditure must come down it is as simple as that. Only this will restore confidence.
The government will have to accept, follow and support the proposed economic strategy of the Department of Finance announced by the Minister of Finance. Even if there may be a conflict between the government and the labour unions it must be adopted and implemented.
There is no time to debate anymore.
The document: Economic Transformation, Inclusive Growth and Competitiveness: Towards an Economic Strategy for South Africa was published on National Treasury's website on 27 August. The Neoliberal strategy call for the modernisation of network industries such as energy, transport, and telecommunications to make them more competitive.
While these industries underpin the economic health of a country, the paper argues that a lack of competition, tardy government action, poor regulation and outdated infrastructure mean they have become impediments to economic growth. This will have to change. Only this will restore confidence.
The Minster will have to lay out a plan of action on the implementation of the plan, how the success or failure will be measured and be reported on. The role of the newly established Economic Consultation advisory board must be spelt out and how it will contribute towards the laid down strategies. Time for setting plans, strategies and committees is long over. It is now time for action.
Only this will restore confidence.
Chris Harmse is the chief economist at Rebalance Fund Managers.