JAMES FORMBY: Can this time be different for SA?
Hold off on new taxes, cut state spend and stop the SOE rot — add that to Ramaphosa’s recovery plan, and SA has a chance
Last week President Cyril Ramaphosa unveiled to parliament the third and final instalment of the government’s response to the devastation caused by Covid-19.
First there was the immediate health response. Then came the social and economic relief package. Now lies ahead the hard work of reconstructing the economy.
On the surface, at least, the economic recovery plan looked similar to what we have heard before.
Cynics may wonder if it is fated to again promise much and deliver little. But there is real hope that this plan may succeed where others have failed.
This is especially true if finance minister Tito Mboweni can hold the course and not introduce an avalanche of new and increased taxes in the medium-term budget policy statement (MTBPS) that he makes next week.
Why are we hopeful that the recovery plan may be more successful in spurring growth at this time?
The first, critical, point is that this plan has been built by consensus.
The recent hard Nedlac debates between the representatives of government, labour, business and civil society will hopefully ensure that there is accountability from across SA for these stakeholders to play their part. And hopefully they will support not only those parts they initiated, but the plan in its totality.
The second point is that there is clearly more urgency than ever. The recession the country is in is of an order of magnitude never seen before. We all know that the government is now playing deep into extra time, with an urgent need for some late goals.
There is no better proof that this time things really are different than where public money is spent
Third, this plan has the clear support of the president. This should mean more effective oversight of delivery.
Fourth, while much of the plan’s content was not new, it was more focused. Previous plans have had many priorities, many of which were vague or broadly expressed. This plan contains only five high-impact components: infrastructure, energy, jobs, manufacturing and rooting out corruption. This improved focus will increase the chances of execution.
And the explicit infrastructure projects that the government sees as a priority, with timelines, ensure collective emphasis on getting these across the line.
It is particularly encouraging to see the importance put on renewable energy and energy security. The latter has been a major drag on the economy, and SA has an opportunity to embrace the energy transition even more aggressively given that much of our coal-fired fleet is reaching its end of life.
Next week’s MTBPS will be an early test of whether it can credibly help lift foreign and domestic investor sentiment.
Clearly, Mboweni needs a lot more money. But he must resist the knee-jerk response of simply raising taxes and creating new ones to make up for revenue shortfalls. Adding to individuals’ and companies’ tax burdens simply won’t work. It may even have the opposite effect of reducing revenue (at the worst possible time) as higher taxes are resisted.
For a real chance for the plan’s success there are only a few measures the government must take, difficult as they may be.
The government has to address state spending, and particularly a wage bill that has taken on a life of its own. Equally, if the government fails to stabilise debt, which is fast approaching 90% of GDP (last year it was only 63%), SA faces the real prospect of a debt crisis in the next few years.
The government must stop bailing out state-owned enterprises (SOEs). Encouragingly, it is considering equity partners to ease the SOE funding burden.
While the plan has many promising elements, it needs to be put into action quickly. There is no better proof that this time things really are different than where public money is being spent.
- Formby is CEO of RMB
LISTEN | All you need to know about Ramaphosa's Economic Recovery Plan
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