ACDP MP and spokesman on Finance matters, Steve Swart, has expressed concerns about the fiscal slippage and spiraling government debt levels as announced today by new Finance Minister, Tito Mboweni.
Minister Mboweni had very little fiscal room to move given the technical recession we have experienced. He has committed to adhere to fiscal sustainability in order to reign in the spiraling public debt levels, and instil confidence in investors and ratings agencies. While the expenditure ceiling, the anchor of fiscal policy, remains intact, we are concerned at the fiscal slippage since February’s budget.
The budget deficit is estimated to be 4% of GDP for the present fiscal year, up from February’s estimate of 3.6% and staying at this level over the medium term. Even at this rate, and with low economic growth of below 1 %, the fastest growing item on the budget is debt service costs (R181bn), which are set to balloon over the medium term. There is little or no room to increase taxes, with the result that government expenditure must be reduced to contain the budget deficit.
Economic growth must increase as this will also result in increased revenue, and support job creation. The ACDP welcomes the further details provided about the R50 billion economic stimulus package (announced last month by President Ramaphosa). We agree that a shift needs to take place from consumption spending (salaries, etc) to infrastructure spending. This also requires a reprioritisation of government expenditure within the fiscal framework.
Minister Mboweni was also very clear that the ballooning public sector wage bill is unsustainable and that steps need to be taken to reduce this expenditure. The additional R30 billion needed for the increased public sector wage bill over the medium term poses a serious risk to the expenditure ceiling and fiscal consolidation path.
The ACDP does not support further bail-outs to State-owned companies (SOCs), such as the R5bn to SAA, the R2.9bn to the SA Post Office, and the R1.2bn to SA Express Airways. While we appreciate that the recapitalization to SAA is to settle debt and prevent a call on the airline’s outstanding debt of R16.4bn, which is guaranteed by government, the question is how much more is to be spent on bankrupt SOC’s. We support further measures to stabilise SOCs, particularly Eskom, which present the biggest threat to state finances, given the guarantees that have been issued to them. Far more urgent steps are needed to address widespread corruption and state capture that occurred during the Zuma administration and recover the estimated R100 billion that has been lost through it.
While it may be very difficult to balance fiscal discipline and populist expectations going into the elections next year, this is very necessary given the poor state of our economy and state of public finances. Strict discipline and a firm hand on the public finances are required. We will be closely engaging Minister Mboweni’s medium term budget policy statement in the run-up to February’s Budget Speech.
ISSUED BY STEVE SWART MP
24 October 2018