MID-TERM POLICY STATEMENT
GAVIN KEETON: Reacting to downgrades shows lack of budget foresight
It’s astonishing that it took the credit downgrades to make the government realise the dangers of the debt-laden fiscal path
The government’s decision to review forecast deficits in the national budget and so prevent debt rising sharply as set out in the recent medium-term budget policy statement is welcome. However, the fact that such a turnaround is deemed necessary a mere five weeks after the original announcement shows a worrying lack of foresight and understanding. This change appears to have been sparked by last week’s further downgrades of our credit ratings. Rather than recognising the parlous state of our national finances, it is a last-minute attempt to pre-empt the downgrade of our last rating above-junk status. In this way the government belatedly hopes to avoid the sell-off of our bonds by foreigners that such a final downgrade would inevitably unleash.The government now proposes addressing the R40bn revenue shortfall revealed in the medium-term budget through further spending cuts of R25bn and raising revenue by R15bn. These are on top of similar cuts and tax increases announced in February’...
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