JOHANNESBURG - Twenty-six years ago, the minister of finance, Derek Keyes, confronted the Cabinet with what he called “filthy pictures” illustrating the fact that the economy was, in his own words, “buggered”.
The new Minister of Finance, Nhlanhla Nene, has inherited a few “filthy pictures” of his own from his predecessor, which reveal that we are in deep fiscal trouble.
The fact is that this Budget fails the “sustainability test” over the medium term between 2018/19 and 2020/21. The primary balance, which is the difference between total revenue and total non-interest expenditure, is in deficit over the medium term, which means all the interest, and some of the non-interest expenditure, over the next three financial years, will have to be financed by borrowing, which will increase national debt. We are effectively using one “credit card” to pay off another “credit card” in South Africa.
That is why national debt, measured as gross loan debt, will balloon to a staggering R3.25trillion, or 56 percent of gross domestic product (GDP), in 2020/21, and will only stabilise at 56.2percent of GDP in 2022/23. To put this in perspective, national debt, measured as gross loan debt, was just R804.9billion, or 31.5percent of GDP, in 2009/10.
The stock of national debt will increase by a staggering R264.4bn in 2018/19, R212.6bn in 2019/20 and R266.7bn in 2020/21.
Skyrocketing debt cost
The fact is that debt service costs are skyrocketing and will cost R180.1bn in 2018/19, R197.7bn in 2019/20 and R213.9bn in 2020/21.
To put this in perspective, consider that in three years’ time we will be spending R213.9bn on debt service costs, which is: R120bn more than we will spend on higher education; R115bn more than we will spend on police services; R20bn more than we will spend on social grants; and R8bn more than we will spend on health in 2018/19. The fact is that at this rate public finances are simply not sustainable in South Africa.
The main budget fails the “sustainability test”, but it also fails the “growth test” and the “credibility test”. It fails the “growth test” because spending on infrastructure, which contributes to economic growth and job creation, has been cut by a staggering R46.6bn in 2017/18, R48.3bn in 2018/19 and R43.8bn in 2019/20.
And the main budget also fails the “credibility test” because there are too many “known unknowns”, including the final cost of free higher education, the final cost of the public sector wage agreement and the final cost of the nuclear build programme, which is apparently “still on the table”.
That is why we believe the minister should now give serious consideration to our proposal to implement a comprehensive spending review. A comprehensive spending review could be geared towards cutting spending by, for example:
Reduce size of executive
* Reducing the size of the executive, to about 15 ministries, which could save an estimated R4.7bn per year, or R13.8bn between 2018/19 and 2020/21.
A comprehensive spending review could be geared towards improving the efficiency of spending by, for example:
* Running the provincial legislatures more efficiently, which could save an estimated R1.8bn in 2018/19, R1.9bn in 2019/20 and R2bn in 2020/21, or a total of R5.8bn between 2018/19 and 2020/21.
A comprehensive spending review could also be geared towards selling off state assets, including:
* Selling assets by privatising, or part-privatising, some of the 223 “public entities”.
* Selling, or leasing, “underutilised land parcels”, not well located for housing development, valued at about R12.6bn.
* Selling government’s remaining shares in Telkom, which would raise an estimated R7bn in 2018/19.
The savings identified as a result of a comprehensive spending review could be allocated variously:
* To provide relief to taxpayers who are being pushed to the limit especially by the increase in Value Added Tax.
* To fund investment in infrastructure to support economic growth.
* To cut the fiscal deficit in order to reduce national debt over the medium term between 2018/19 and 2020/21.
David Maynier MP is the DA’s Shadow Minister of Finance and a member of the Standing Committee on Finance.
The views expressed here are not necessarily those of Independent Media.
-BUSINESS REPORT