27 February 2020

Business Unity SA (BUSA) Reaction to Budget 2020

This budget was delivered in a context of an economy that is growing below 1% and little prospect of growing much beyond that in the foreseeable future, exacerbated by political uncertainty as a result of problems in the majority party and poor service delivery. An additional element in this context if a budget deficit projected to be 6.8% of GDP. BUSA believes the minister did the best he could to balance the elements of this context, but SA needs much stronger leadership from government. We welcome announcement by the minister that there will be no tax increases. This is appropriate in the current economic climate. We welcome the hard decision to reduce, to some extent, the public sector wage bill, and modest cuts in other areas of expenditure.


We urge the President and his Cabinet to unequivocally support this and implement accordingly.  We are happy with a confirmation of the role and independence of the SA Reserve Bank, and trust this unnecessary, but damaging, debate is now put to bed.


We reluctantly accept the allocation of funds to ESKOM, which now has an experienced CEO who has put plans on the table to start addressing the SOE’s myriad problems. However, we can’t agree with funds allocated to SAA. This SOE is in business rescue and there is no indication that the institution can be viable. This allocation thus throws scarce resources into a SOE that is not of strategic importanc3 to SA.


We are still not clear about the need for a state bank, but we welcome the minister’s announcement that the bank will operate on commercial principles and will be regulated under the Banks Act by the Prudential Regulator.


We agree with the minister that a sovereign wealth fund is a good instrument to enable a country to make countercyclical interventions when appropriate. We also agree this is a long-term project and we believe this is an ideal we must strive for. However, we cannot agree that such fund can be capitalized in the short to medium term. The minister used as an example that this fund could be part funded by income from the auctioning of spectrum. We are strongly of the view that any income raised by government that is not used for delivery of services must be used to reduce our debt, which expends 15cents in every rand we spend. The capitalization of a sovereign wealth fund should only be considered as we move from a budget deficit towards a surplus.


So, this is essentially a “holding pattern” Budget in the contex5 described in the first paragraph of this statement. But the numbers remain ugly:

The crucial numbers are a consolidated budget deficit of 6.8% of gross domestic product (GDP), gross national debt of 65.6% of GDP by the end of 2020/21; and economic growth of 0.9% in 2020. Despite some helpful announcements, there is nothing in the budget that will significantly change the growth or debt figures, South Africa is likely to lose its last investment grade credit rating this year.  A poor credit rating increases the cost of funding for banks which in turn increases borrowing costs for business, consumers and government and this will dampen the possibility of future economic growth.

This demonstrates the crisis SA is in and emphasizes our consistent view that the urgency of creating an environment for investment and growth is the critic issue for our country!


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