What this means is that Finance Minister Tito Mboweni’s “mini-moon” is over, and he faces a “six pack” of challenges that will have to be dealt with in his “maiden” Medium Term Budget Policy Statement.
We expect the economic growth rate to be revised down to about 0.7 percent (2018), 1.9percent (2019) and 2percent (2020).
The minister should present a credible plan to boost economic growth to at least 3percent by announcing a package of structural reforms designed to increase private sector investment.
This requires a fundamental change in economic policy aimed at increasing private sector investment by:
(1)Exempting small businesses em- ploying fewer than 250 employees from having to comply with restrictive labour laws, other than the basic conditions of employment.
(2) Removing the extension of bargaining council agreements to non-parties, who often cannot carry the cost of wage agreements imposed on them.
(3) Most importantly, scrapping reckless economic policy proposals such as the formation of state banks, land expropriation without compensation, and the nationalisation of the South African Reserve Bank.
We have a staggering national debt which is expected to stabilise at about R3.8trillion or 53.2percent of gross domestic product (GDP) in 2023/24.
However, there is likely to be significant “fiscal slippage” given:
(1)Lower-than-expected economic growth, with the economy expected to grow at an average of about 1.5percent over the medium term.
(2)Lower-than-expected revenue given, inter alia, the recommendations of the independent panel on value added tax, which may decrease revenue by about R18billion over the medium term.
(3)Higher-than-expected expenditure given, inter alia, the public sector wage agreement which may increase expenditure by about R30bn.
(4)Higher-than-expected debt service costs of about R34bn as a result of in- creasing national debt.
(5)Financial assistance required by zombie state-owned enterprises over the medium term, such as the R22bn in “bailouts” required by SAA.
The R50bn to be spent on the “economic stimulus and recovery plan” is expected to be funded by reprioritisation and is assumed to be “budget neutral” in 2018/19 to 2020/21.
We expect fiscal deficits to increase and national debt to stabilise at a level above R3.8trillion or 53.2percent of GDP, some time after 2023/24.
What this means is that debt service costs will skyrocket to about R280bn in 2023/24, which is a staggering R87bn more than we will spend on social grants in 2018/19 in South Africa.
The minister should hold the fiscal line by announcing a comprehensive spending review and presenting a credible plan to stabilise national debt at or below 50percent of GDP.
State capture has shattered public trust in our institutions, not least the SA Revenue Service.
The “boards and bailouts” strategy of Public Enterprises Minister Pravin Gordhan means there are several zombie state-owned enterprises that require financial assistance of some form over the medium term, including Denel (about R1bn); the SABC (about R1.2bn); the SA Post Office (about R2.7bn) and SAA (about R21.7bn).
We believe the minister should present a credible plan to reform failing state-owned enterprises.
David Maynier, MP, is the DA's spokesperson on finance.
The views expressed here do not nnecessarily reflect thos of Independent Media.