Media release: Mini budget – Zuma fiddled while South Africa burned!

Media release
25 October 2018

Mini budget – Zuma fiddled while South Africa burned!

Tito Mboweni had the unenviable task of presenting a budget that was the consequence of the maladministration of the Zuma era with a Treasury running out of cash and a government leaking like a sinking ship.

He had the unpleasant task of announcing that the cost of servicing government debt is expected to exceed 2018 Budget estimates by R1 billion in 2018/19, R4.9 billion in 2019/20 and R7.9 billion in 2020/21. This reflects a larger main budget deficit, currency depreciation and higher interest rates. An estimated 15.1% of main budget revenue will be used to service debt in 2021/22 compared with 13.9% in 2018/19. With the short time made available to him, this so-recently appointed Minister could not be expected to put forward fundamental solutions to the serious economic and fiscal problems facing the country, but, now, finding such solutions should be his top priority.

Some of the major items dealt with, and not dealt with in the mini budget are:

• A sinking economy – GDP is expected to grow by a shockingly low 0.7% in 2018, while the budget deficit is expected to increase from 3.6% to 4.0% of GDP. What is more, the deficit is expected to rise to 4.2% of GDP before easing back to 4% sometime in the future. Gross debt is expected to stabilise at 59.6% of GDP by 2023/24, a level that approaches the dangerous tipping point of 60%.
• Longer term reforms – Reforms are being considered to change the structure of the economy, raise productivity, increase competition and reduce the cost of doing business. (To do so, government should divest itself of all state-owned enterprises. In private hands, the enterprises would be more productive, their current monopolies would disappear, and they would become more competitive. All unnecessary regulations that raise the cost of doing business and make businesses less competitive should be removed.)
• SOE bailouts – SOE bailouts are set to cost taxpayers: SAA R5 billion, SANRAL R5.8 billion, and SA Post Office R2.9 billion. If the SOEs were all privately owned, taxpayers would not be burdened with these costs. An enterprise is intended to make a profit and if through poor management and inefficiency it is incapable of competing, it should be closed or sold, not become a perpetual burden on taxpayers.
• Mass unemployment – There are 9.6 million unemployed (almost 40% of the potential workforce), including 2.5 million discouraged workers, according to Stats SA’s Q2 2018 report. If unemployment can be reduced from 40% to 10% (2.35 million people) and the remaining 30% (7.13 million) had low-paid jobs paying a mere R2,000 per month, they would be earning R14.26 billion per month or more than R170 billion per annum. Their additional production could contribute more than R500 billion per annum to the SA economy. The barriers to entry into the job market that prevent them from supporting their families and contributing to the economy should be removed as soon as possible as part of the urgently needed economic reforms to get South Africa’s economy back on track.
• Government employees – The MTBPS reports that the 2018 public-service wage agreement exceeds budgeted baselines by about R30.2 billion over the medium term. The wage bill, which absorbs 36% of the country’s budget, remains the biggest cost pressure on the budget. Over time, wages have crowded out investment, particularly in health, education and defence. Around 85% of the increase in the wage bill is due to higher wages rather than headcount increases. Correcting this untenable situation is being obstructed by the labour unions, which is a matter of serious concern. The country cannot be held hostage because of political affiliations.
• VAT relief – The Treasury has proposed that white-bread flour, cake flour and sanitary pads be zero-rated from April 1, 2019, and that the revenue loss associated with zero-rating these items is estimated at R1.2 billion. The poor need to be given the right to work and should not be fobbed off with the infamous comment ascribed to Marie Antionette during the French Revolution, “Let them eat cake!”.

Ends