Making his maiden mini-budget speech, our new Finance Minister got to the point quickly.
Making his maiden mini-budget speech, our new Finance Minister got to the point quickly.
The economy is struggling.
He projected economic growth of 1.4% this year, the same low figure the International Monetary Fund (IMF) has forecast.
“Governments everywhere face difficult choices,” Nhlanla Nene said on Wednesday, “because the gap between what is required and what can be afforded is very wide. And so we have to be steadfast in our resolve to do more, together, with less.”
Nene spelled out the problem: while economic growth may rise to 3% in three years’ time, we need 5% economic growth to make a dent in unemployment.
Because of the poor outlook, we need “fiscal consolidation”, which simply means cutting the amount the government borrows to balance the budget, to reduce overall government debt.
The idea is to escape the trap of paying so much interest on government debt. There is then little money left for teachers and textbooks, doctors and hospitals, social grants and all the other things we tend to take for granted.
So to cut the borrowing, the Minister needs in the next three years more tax to come in as well as to cut back on spending. Neither is popular.
The mini-budget, or more correctly the Medium-Term Budget Policy Statement (MTBPS), focuses on spending, which has been cut back by around R6-billion for this year.
Next financial year, the government needs to get R12-billion more in tax as well as spend R10-billion less than had been planned. Nene did not say what tax changes or new taxes are envisaged.
He could raise VAT next year by one percentage point to 15%, and bring in billions at the stroke of a pen.
The government’s powerful alliance partner, the Cosatu, would object.
They will not object to higher income taxes on the rich, but since such a small percentage of the population pays tax, it’s likely the middle class will also have to shoulder the burden.
Bear in mind that tax increases crimp overall spending in the economy, and in an era of low growth government is supposed to spend more not less to rev the economic motor.
And bear in mind, too, that stubborn unemployment looms large as our biggest social and economic problem, one that means the government cannot cut the social grants, which make up around 10% of the budget and benefit more than 16-million South Africans, or almost a third of the population. Government can create jobs of a sort.
It aims to create around 6 million short- to medium-term jobs through the expanded public works programme over the next five years.
An innovative approach to government job creation is the separate Community Work Programme, which guarantees participants two days of work a week, or eight days a month, in communities.
The number of part-time jobs created by the CWP in the six months of this year was well on track for the full-year target of 187 000.
However welcome these and similar programmes are, they don’t solve the persistent problem of how to get some spark into the economy.
Above all, they don’t do much for business, especially small business. A search of the MTBPS brings up not a single mention of small business. In a nation of oligopolies, future competition has to come from small businesses that grow into big businesses.
There is no mention of plans to build nuclear power stations either.
Rumours of deals with the Russians to build nuclear power generation worries many South Africans on environmental grounds, and we should be even more concerned about the potentially crippling costs.
“Intergenerational equity” is the Treasury phrase that should give pause on big projects: it means not saddling future generations with today’s spending follies. While there was a warning about tax increases ahead, there was no indication of tax rises to fund the National Health Insurance (NHI) scheme.
There was a hint in the MTBPS documentation about how the NHI is to be brought about, and that is that the provinces will have to give up at least part of their power over health spending.
It may be my imagination, but our new finance minister seemed to use less economics jargon in his speech than previous ministers. He would have to have some, however.
The MTBPS is as much aimed at the powerful and unaccountable ratings agencies, whose opinions matter so much to the cost of the money that government borrows, as to the public.
On that score, he was shrewd to accept the IMF’s pessimistic growth forecast.
Any sign of unwarranted optimism about the South African economy, given the uncertainty in the world economy, would have been taken amiss.
He can claim credit if the economy does better in the years ahead: if it does worse he can’t be accused of being unrealistic.
