24 October 2018

Business Unity SA (BUSA) comment on the Medium-Term Budget Policy Statement

Business Unity SA (BUSA) views new Finance Minister Tito Mboweni’s Medium-Term Budget Policy Statement (MTBPS) as an honest and comprehensive reality check for SA to address its macro-economic and fiscal fundamentals in order to prevent further deterioration in growth and to reverse negative trends.

 

The MTBPS comes on the eve of SA’s Investment Conference and correctly emphasises the imperative to ease the regulatory burden of doing business and to put in place other interventions that will stimulate investment into the country. Statistics SA data on 2018 second quarter GDP shows that the country entered a technical recession and documented a decline in gross fixed-capital formation, which is a key enabler of growth. Policy and regulatory certainty are critical mechanisms through which to stimulate investment. BUSA welcomes the reinforcement of the National Development Plan as SA’s blueprint policy document, as well as the commitment to relook at the regulatory obstacles to investment and doing business in the country.

 

The Minister’s acknowledgement that the country needs to live within its budgetary constraints is an essential principle that has been underscored by the business community.

 

BUSA welcomes the government’s positive response to social partners’ appeals for the carbon tax and carbon budget to be aligned. The general thrust and posture of the MTBPS is supportive of more collaboration among the social partners and to sustain the momentum generated from the Jobs Summit process. But greater recognition could have been given to freeing up the constraints on small business to create a more enabling environment for small businesses to participate in the economy. The collaborative approach emphasised and the acknowledgement of the critical role of the private sector in the speech create a conducive environment to improve SA’s current economic narrative and trajectory. Similarly, so will the emphasis on the independence of the Reserve Bank and the importance of inflation targeting.

 

BUSA President Sipho M Pityana said: “Business is particularly concerned about the low levels of domestic investment, as the general trend is that this impacts on foreign direct investment. Minister Mboweni had a tough balancing act amid a deteriorating operating environment underscored by a technical recession. It is important that the government delivers on the promises and commitments made in the MTBPS.”

 

“The commitment to curb corruption is particularly welcome, given the scourge and cost of state capture on our national resources. This is pronounced in the state of mis-governance and maladministration in state-owned entities (SOEs) and the South African Revenue Service (SARS). It is, therefore, imperative that the government make good on its commitment to restore lost trust and confidence with the body politic,” Pityana added.

 

BUSA notes the commitments made to abide by the fiscal expenditure ceiling and the reprioritisation of funds to productive sectors, particularly agriculture and infrastructure. Identifying the need to reduce the debt-to-GDP ratio, narrowing the budget deficit, strengthening the leadership capability and collection capacity of SARS, and speeding up value-added tax (VAT) refunds will go some way in improving SA’s macro-economic and fiscal environment. BUSA notes the Minister’s position on the user-pay principle in the context of e-tolls. The Minister’s emphasis on reconfiguring SOEs and inviting the private sector is a positive signal.

 

Business welcomes the government’s undertaking to clean up governance at SOEs, to make sure parastatals are less reliant on bailouts and government guarantees, and to ensure that there is an effective consequence management framework to deal with corruption. The commitment to ensure that there are competent and capable public servants, particularly at municipal level, is a step in the right direction. However, this must to be implemented, and not just spoken about.

 

Notwithstanding the positive signals to the market and investors emanating from the MTBPS, BUSA is concerned about the deterioration in the forecast for the debt-to-GDP ratio at 59.6% by 2023-24, as well as the budget deficit peaking to 4.2% in 2019-20 and 2020-21 arising from an increased borrowing requirement. In this context, urgent implementation of stated growth-enhancing reforms is required to generate the economic and revenue growth necessary to stabilise the fiscus.