21 February 2020

Business Unity SA (BUSA) PRE-BUDGET 2020 MEDIA STATEMENT

The State of the Nation Address (SONA) delivered on 13 February provided a forthright description of the public finance challenges confronting our country, which Minister Mboweni and National Treasury need to address in next week’s Budget Speech. BUSA endorses the diagnosis of President Ramaphosa that our public finances “need fixing”, that revenue is insufficient to cover expenses, debt is heading towards unsustainable levels, and that spending is imprudently directed towards consumption and debt-servicing rather than infrastructure and productive activity. This diagnosis is likely to be compounded by worsening statistics including reduced GDP growth and a widening fiscal deficit, which undermines the credibility of previous and current projections. This is in an overall context of an unprecedented socio-economic and political crisis.

 

In the context of an imminent sovereign-rating downgrade by Moody’s, the following urgent pronouncements and detail is required from the Budget:

  • Measures to meaningfully reduce the public sector wage bill over and above the voluntary retirement packages announced in the 2019 Budget.
  • Clear announcements regarding measures to stabilise and rationalise SOEs, including the partial, outright disposal or closure of non-core assets where they do not serve an appropriate purpose and where then viability cannot be assured. Further support should be limited to SOEs that are systematically critical. Stats SA should be appropriately capitalised.
  • Implementation of Treasury’s Economic Transformation, Inclusive Growth and Competitiveness policy paper. The document is broadly supported by business and contains several much-needed microeconomic interventions necessary to boost growth. The President also identified this document in the SONA as the basis for much needed restructuring of the economy. Radical and extensive structural reform is needed to place us on a sustainable path to growth.
  • A viable funding plan for infrastructure, including a clear pathway towards self-financing investment projects and public-private co-financing programmes. Such a plan should leverage off commitments made by all stakeholders to cooperate in mobilisation of financial and technical resources, concentrating on priority sectors and leveraging external sources of capital where possible.
  • Measures, over the medium- to long-term, to reduce the tax-to-GDP ratio (nearing historical highs) and a shifting of the balance between fiscal and market-based provision of public goods. Significant increases in taxes in the current constrained economic context will be self-defeating. There is a corresponding need to improve the efficiency of tax collection.
  • Reform of the Road Accident Fund, with a current unfunded liability of R200bn and counting.
  • A more fiscally sustainable approach to medico-legal liabilities (currently at approximately R90bn) and other claims against the state.
  • Tax and other measures aimed at employment, including further details on the Youth Employment Initiative announced in the SONA.
  • Restoration of capacity and credibility of SARS to boost revenue collection and facilitate voluntary compliance. In the short-term, this will require an increase in allocations to SARS.
  • Investing in the capacity, through increased allocations where necessary, of the criminal justice system to effectively deal with the spectre of State Capture, corruption and the breakdown in law and order seriously impacted on citizens and businesses.
  • How government plans to reduce its debt, cut its deficit, and achieve the R150 billion in savings that Finance Minister Tito Mboweni promised in his medium-term budget statement in October.
  • The Minister must not allocate scarce resources to a proposed State Bank.
  • The Minister remove any focus on a sovereign wealth fund until our fiscus generates a surplus, which is certainly not foreseeable in the near-term. A sovereign wealth fund can only be capitalised through super profits in a commodity cycle – we currently cannot divert scarce resources to a sovereign wealth fund under the current circumstances.

 

After several years of pronouncing commitment to fiscal consolidation, the 2020 Budget constitutes arguably the final opportunity for government to demonstrate – and not merely articulate – the commitment and capacity to implement necessary reforms to place South Africa’s public finances on a sustainable trajectory. This requires limiting, and over time, reducing public debt levels through efficient prioritising of spending and expanding the tax net through inclusive economic growth. This requires urgent and decisive action by Treasury, with the full and unequivocal support of Cabinet and government more broadly.