This week, South Africa’s 2017 medium term budget statement was delivered our new Finance Minister. The turnover rate of the office-bearers in the Finance Ministry is congruent with the trends of the current political ecosystem. Regrettably, the past 3 budget statements have all exhibited the same features – a downward revision of growth forecasts; lamentations about the growing trade deficit, the decline in projected tax collections and a lack of clarity about what exactly will be done to fix the current challenges.
Minister Nhlanhla Nene’s 2015 budget revised growth forecasts from 2% to 1,5% all in the shadow of a 4% budget deficit. Minister Gordhan’s statement – delivered in the shadow of a revised 3.4% deficit – shifted Nene’s growth forecast to just 0.5% with an expected rise to 1,7% in 2017. Forecast growth as presented by Minister Gigaba is expected to be 0,7%, paired with a deficit of 4,3%, the sub-1% growth forecast suggests more urgency for reforms to add credibility to the suggested 1,1% forecast for 2018. It is important to view this in the context of global growth forecasts by the IMF of 3,7% in 2018.
The tax gap of R50 billion for 2017 is a glaring signal of the desperation in our economy. The main highlight of the budget statement was simply the honesty with which it was delivered. In a world where the trust deficit between the politicians, the electorate and society widens with every single scandal, it is most refreshing to see a statement that stated the hard truths.
As Minister Gigaba articulated, the economy remains binary and rigid in multiple facets. Market concentration in key sectors makes the much-needed growth in small enterprises difficult to achieve. The consequence of such concentration patterns is that once the big market players reach a saturation point, there are no small players to keep the growth momentum in the winder economy. The government’s own spending patterns focus on the polar ends of the economic divide – social assistance for the poor and bailouts for state entities – not much happens in between.
In light of this, one would expect that any budget statement would specifically identify ways of addressing these challenges. Each of the recent budget statements has made loose references to the National Development Plan whose goals become more elusive each year. Minister Gigaba’s speech could have also highlighted that the objectives of the NDP are in the extreme, difficult to achieve in the context of the current economic fundamentals. More importantly, government seems to be unable to articulate whether the NDP goals should drive monetary and fiscal policy or if the NDP is to be a bye-product of the economic fundamentals. If one sees the NDP as the end result then the budget statement should be able to link the revised economic outcomes to the prospects of the NDP’s ambitions being adjusted.
In the alternative, if the NDP is to be pursued at all costs, we should be able to see this commitment in the budget statements. One glaring example is the NDP’s estimate on graduate outcomes. It is said that South Africa needs to have 400 000 new university graduates in the system by 2030. The day before the budget statement was delivered, Statistics SA highlighted that one of the key weaknesses in the education and skills rollout in the country is the low graduate outputs. We are hopeful to soon learn on what will be done to address the constipation in the university system in order to meet the NDP goals in this respect.
The Minister indicated that the sale of the Telkom stake will be supplemented by an option to buy it back in the future. In explaining the rationale for this approach, the Minister indicated that SAA remains a strategic asset which needs to be kept afloat. Additionally, the option of an equity injection into SAA remains on the cards. Whilst this all makes sense, it is possibly worth noting that the sale of the Telkom stake simply means the current dividend stream – which the fiscus desperately needs – will be sacrificed until the state is able to buy back the Telkom shares in the future. Given the declining state of public finances, it is difficult to understand this action as a suitable one. And in a speech which articulates that the state is not actually averse to a third party equity injection into SAA, surely the acceleration of that transaction rather than the sale of the Telkom stake would have made more economic sense in the current climate.
Another key issue noted by ABASA is that the state is now in danger of breaking its own spending ceiling by R3,9 billion. A few days before the speech, the Auditor-General indicated that the prevalence of fruitless, wasteful and irregular expenditure in state departments and enterprises remains a problem. We would then have expected a clear commitment from the minister to address such inefficiencies within the public sector as one of the ways in which the state of public finances can be improved.
The nature of such dilemmas relating to public finances is that most of what we interrogate relates to past actions which can no longer be remedied. What is needed at this stage is a collective effort by all stakeholders within and outside the state to lift us out of the current situation. After all, a viable economy is necessary for us to all enjoy the rights associated with our citizenship and the South African Constitution.