- Lacks reforms to turn the tide on low economic growth
- Government debt remains high, State finances continue to deteriorate
- Public sector wage bill remains largely unchecked
- SOEs continue to drain fiscus
Business Unity South Africa (BUSA) is disappointed at the lack of bold steps in Finance Minister Tito Mboweni’s Budget to contain Government debt and ensure South Africa retains its remaining investment-grade sovereign credit rating.
While we appreciate that Minister Mboweni delivered his maiden Budget speech amid weak economic growth, a low investment climate and high inequality, we believe he has failed to address the fundamental challenges facing South Africans and the economy.
In particular, the Budget speech has not introduced the much-needed and far-reaching reforms necessary to turn the tide on the low economic growth trend, arrest the State’s deteriorating finances and high debt, confront the governance and financial challenges besetting state-owned entities (SOEs), and to decisively address the root causes of the rising public sector wage bill.
While Minister Mboweni is to be commended for presenting a realistic assessment of the country’s challenges, the Budget came up short on concrete steps that need to be taken to lift the South African economy from its current prolonged slump and radically improve the investment climate.
The economy is projected to have grown by less than 1% in 2018, and the growth estimates for the medium term remain low relative to the country’s ambitions to get the economy going. This is further compounded by a weakening global economic growth rate. In addition, the Budget speech has not gone far enough to alleviate policy uncertainty, which is the primary factor cited for the country’s low investment rate.
The State continues to walk on a shaky tightrope with reference to revenue and expenditure, and its debt-servicing costs. A projected debt rate ratio of 60% to GDP is not only unsustainable, but also threatens to undermine Government social spending.
In reference to SOEs, BUSA considers the power utility the greatest risk to the economy, and its ongoing operational, structural and debt challenges require resolute and urgent action. BUSA notes the R23bn-a-year allocation to Eskom in the absence of a comprehensive, aligned position between the power utility and its stakeholders on how to effect a restructuring. BUSA welcomes the announcement that Cabinet will take steps to ensure that the State no longer advances guarantees to SEOs for operational purposes. However, there are no proposed modalities on what form, shape or function SOEs will take to offload their pressure on State finances.
BUSA is also disappointed at the lack of appropriate acknowledgement of the risks posed by land expropriation without compensation and, by extension, the protection of property rights, with reference to investment. The Budget also failed to reinforce the independence of the Reserve Bank and signal support for inflation targeting.
BUSA notes the announcements with reference to bolstering SARS and ensuring that the tax authority is well-capacitated and resourced to undertake its mandate. We also welcome the fact that there were no increases in personal income tax and corporate income tax in this tough economic and operating environment. In addition, BUSA welcomes efforts to strengthen the National Prosecuting Authority’s state capture unit.
“We previously characterised Minister Mboweni’s medium-term budget policy statement in October 2018 as a reality check,” said BUSA President Sipho M Pityana.
“This Budget is a wake-up call that South Africa has run out of time. It affects all of us, and we should all be concerned. Drastic interventions are needed by Government to provide clarity on economic policy, manage Government debt, and contain the increasingly negative economic impact of ailing SOEs.”