JOHN STEENHUISEN: A growth and jobs budget is the only path to success for SA

The postponement of the budget announcement this past week presents the government of national unity (GNU) and stakeholders across the economy with a unique opportunity to reset our approach to SA’s economic future. This is a crisis we cannot afford to waste.

There is no point sugar-coating it: SA is at serious risk of economic failure. For 12 long years, our population has grown faster than the economy, making South Africans poorer. We have the world’s highest unemployment rate and have been at the top of the list for decades. We are in debt up to our necks, and are taxed more than people can bear.

As a consequence, our options are close to exhausted.

We cannot continue driving up our debt-to-GDP ratio. We are already spending 21% of our budget on borrowing and servicing debt. If we borrow more than was announced in the medium-term budget policy statement last October, our creditors will make us pay even more to borrow their money, making it impossible to fund critical economic and social priorities.

We cannot hike taxes any further. As SA Revenue Service commissioner Edward Kieswetter made clear last week, we are at the point where tax increases fail to generate hoped-for revenues because people find ways to avoid paying taxes. And in any event, given the inefficient and ineffective use the government often makes of money, higher taxes serve largely to take money from productive purposes in the private sector and redirect it towards unproductive ones in the government.

We can, of course, cut our financial coat according to our cloth, and we should, but there is only so much cutting a government can do before the economic and social consequences become extremely painful.

And so we find ourselves now in an economic Bermuda Triangle, unable to borrow, tax or cut our way to success. There is only one way out: economic growth.

Unless a rapidly growing economy delivers the jobs our people so desperately need and the tax receipts the government seeks, SA’s economy will sink and with it any prospect of funding the government’s priorities.

Take education, for example. The department of basic education estimates that by the 2027/28 financial year it will have been underfunded by somewhere between R79bn and R118bn since 2021/22. That is the price we are paying for failing to grow our economy and it is a price that is being shouldered by our children. 

And so, the budget that is announced on March 12 is an opportunity to level with the people of SA. We need to be honest about our fiscal constraints. But equally, we need to offer a crystal clear, very specific set of growth reforms that will give confidence to the bond markets, hope to our citizens and a laser-like focus to the GNU.

We simply cannot fund every spending demand in this coming budget. The R60bn additional spending contemplated is largely a choice, not an obligation. We can and must be prepared to just say no.

At the same time, we should announce an urgent spending review in two parts. First, a three-month sprint to identify “low-hanging fruit” — programmes and projects that can be cancelled or reduced as a means of freeing up money for priorities that need funding during the coming financial year. Second, a more comprehensive review that reorientates state spending to critical priorities and to programmes that demonstrably deliver value.

In addition, the finance minister, with the backing of the whole cabinet and all parties in the GNU, should announce a set of ambitious economic reforms and offer clear deadlines for implementation, because deadlines signal commitment and commitment reassures bond markets and investors. If such reassurance could bring down the cost of borrowing just a little it would immediately save billions that could be redeployed elsewhere.

Growth measures should include:

• Port and rail reform: announcing 2025 deadlines for the implementation of private concessions in ports and rail to improve efficiency, cut costs and increase trade competitiveness.
• Energy market reform: announcing a dated road map for the creation of a competitive electricity market that enables private producers to contribute to the grid and lowers energy costs for businesses and consumers.
• Tariff and trade reform: immediately reducing tariffs that make SA manufacturing uncompetitive, boosting exports and industrial growth, and eliminating tariffs on products SA doesn’t produce.
• Regulatory reform and red-tape reduction: immediately accepting the World Bank’s offer of a free regulatory review, which can be done within three months, to streamline bureaucracy and cut unnecessary regulations to encourage entrepreneurship and investment.
• Labour market reform: introduce labour market flexibility, reduce barriers to entry, and foster a more competitive environment by eliminating excessively strict hiring and firing regulations that discourage job creation and limit small business growth. Reforms should include exempting small, medium and micro enterprises from sectoral collective bargaining agreements they are not party to, excessive red tape and the threat of costly legal disputes.
• Public procurement reform: About 1% of GDP can be saved on public procurement that would free up resources for critical needs. Public procurement reform based on transparency, competitive bidding and value for money is now needed to eliminate patronage related premiums. Standardising pricing at market-related costs, enforcing open tender processes and blacklisting corrupt suppliers can curb abuse in the procurement arena.
• Equity equivalence: Make equity alternatives available to investors in place of ownership requirements as the government already does in the automotive sector and has agreed to do in the ICT sector.

Taken together, these and other growth measures can lift SA’s growth to 3% and beyond.

It is difficult to emphasise enough how urgent these growth reforms are. It is now five minutes to midnight for our economy and the fiscus. In the short term, we can absorb the shortfalls we face, but unless we generate the growth required to shift our trajectory, we risk being unable to fund even the most basic needs of our people, and abandoning them to a wasteland of poverty from which there is no escape.

• Steenhuisen is federal leader of the DA.