DAVID MAYNIER: The big issues Mboweni can’t ignore in his budget address
The DA wants to know where he stands on radical economic transformation, and how he proposes to tackle sluggish growth and unmanageable debt
We are in deep economic trouble, with ordinary people battling to make ends meet as they experience an income squeeze on top of tax increases and petrol price hikes. And 9.6-million people do not have jobs, or have given up looking for work.
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 (MTBPS) on Wednesday.
The minister has a reputation for having fairly orthodox views on the economy, but during his political exile he often took to social media posting controversial content, which included an apparent flirtation with radical economic transformation. We need to know whether these posts were indeed just a flirtation or were a conversion.
We believe the minister should define himself by explaining his brush with radical economic transformation and clarifying his views on extending state ownership in the mining sector, establishing a state bank and creating a sovereign wealth fund in SA.
President Cyril Ramaphosa’s “new path” of economic growth, employment and transformation lost momentum when the economy slipped into recession. We expect the economic growth rate to be revised down to about 0.7% (2018), 1.9% (2019) and 2% (2020). This is insufficient to sustain our public finances or provide employment to the 9.6-million people who do not have jobs, or who have given up looking for work.
We believe the minister should present a credible plan to boost economic growth to at least 3% by announcing a package of structural reforms designed to increase private-sector investment. This requires a fundamental change in economic policy aimed at, for example, increasing private-sector investment by:
- exempting small businesses employing fewer than 250 employees from having to comply with restrictive labour laws, other than the basic conditions of employment;
- removing the extension of bargaining council agreements to non-parties, who often cannot carry the cost of wage agreements imposed on them; and
- most importantly, scrapping reckless economic policy proposals such as the formation of state banks, land expropriation without compensation and the nationalisation of the SA Reserve Bank.
We have a staggering national debt that is expected to stabilise at about R3.8-trillion or 53.2% of GDP in 2023/24. However, there is likely to be significant “fiscal slippage” given the lower-than-expected economic growth, with the economy expected to grow at an average of about 1.5% over the medium term. Revenue is also likely to be lower than expected given, inter alia, the recommendations of the independent panel on value-added tax, which may decrease revenue by about R18bn over the medium term. In addition, expenditure is likely to be higher than expected given the public-sector wage agreement, which may increase expenditure by about R30bn over the medium term.
Debt-service costs of about R34bn will rise further as a result of the increasing national debt over the medium term; and financial assistance will be required by zombie state-owned enterprises over the medium term, such as the R22bn in “bailouts” required by SA Airways.
The R50bn that will be spent on the “economic stimulus and recovery plan” is expected to be funded by reprioritisation and is assumed to be “budget neutral” between 2018/19 and 2020/21. We expect fiscal deficits to increase and national debt to stabilise at a level above R3.8-trillion or 53.2% 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.
We believe 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, 50% of GDP. This comprehensive spending review would be aimed at reviewing the efficiency of spending, composition of spending, future spending priorities and asset sales, with a view to:
- selling off assets, including public entities, underutilised buildings, underutilised land parcels and liquid assets;
- improving the composition of spending by funding investment in infrastructure to support economic growth; and
- cutting the fiscal deficit to reduce national debt, and debt service costs, over the medium term between 2019/20 and 2021/22.
However, if we are serious about the expenditure problem we have to get serious about cutting the cost of “compensation of employees” in the comprehensive spending review. The fact is that public-service wages in general government will consume an average of 40% of tax revenue over the medium term between 2019/20 and 2021/22.
We could cut such costs through a combination of measures including retrenchments, early retirements, severance packages, headcount freezes and wage freezes. To illustrate the savings envelope available, a “wage freeze” in general government would save a total of R238bn between 2019/20 and 2021/22.
The fact is that as a result of state capture, public trust has been shattered in many institutions in the “finance family”, not least the SA Revenue Service (Sars). The interim report of the commission of inquiry into tax administration and governance by Sars paints a terrifying picture of intrigue, fear, distrust and suspicion.
We believe the minister should restore public trust by announcing that Sars commissioner Tom Moyane will be removed and a new appointment made without delay, in line with the recommendations of the commission.
The “boards and bailouts” strategy of public enterprises minister Pravin Gordhan means there are several zombie state-owned enterprises that require financial help of some form over the medium term, including: Denel (R1bn); SA Broadcasting Corporation (R1.2bn); SA Post Office (R2.7bn) and SA Airways (R21.7bn).
We believe the minister should present a credible plan to reform failing state-owned enterprises by placing a moratorium on any further government guarantees to state-owned enterprises; and placing the national airline in business rescue and then privatising, or part privatising, SA Airways.
The fact is that Eskom, with its R387bn debt mountain, much of which is backed by government guarantees, could blow up SA’s balance sheet. With declining demand, revenue shortfalls, cost overruns and a debt mountain, the question of what to do with Eskom remains. To make matters worse, Eskom recently received a “confidential” R34.4bn loan from the Chinese Development Bank.
We believe the minister should present a credible plan to turn around the utility by privatising, or part privatising, the power generation assets; end the monopoly by allowing cities to purchase electricity directly from independent power producers; make it clear that the R350bn government guarantee currently in place is a hard ceiling for Eskom; and make full disclosure of the terms and conditions of the confidential Chinese loan.
• Maynier, MP, is DA shadow finance minister.