The following remarks were delivered by DA Shadow Minister of Finance, Alf Lees MP in Parliament today.
Introduction
Nothing can illustrate the dire state of the South African economy better than the state of Eskom. The Budget for 2019 is going to extend this illustration, by painting a picture of South Africa in the dark, with 9.7 million people who are out of work and have no hope of seeing a job in the 2019 Budget.
The Minister of Finance should be making the robust decisions necessary to hold the fiscal line, but will likely simply not have the support of cabinet and the failing and fractured ANC nor indeed fiscal room to manoeuvre. The Minister is faced with financial crises at every turn and no matter the maladministration, thievery and thuggery that brought these about, they cannot be wished away.
Finance Minister Tito Mboweni will be dealing with the biggest financial crisis since the advent of a democratic South Africa. This time the crisis is not the making of the apartheid regime, but by a democratically elected ANC government that included President Cyril Ramaphosa.
When Minister Tito Mboweni makes his maiden budget speech, the Minister will have to deal with the following key issues:
- Weak economic growth – by presenting a credible plan to boost economic growth to an average of at least 3%;
- A Revenue collection shortfall – by at very least announcing the name of a new credible SARS Commissioner;
- Cost Containment – by providing expenditure reductions to ensure that the expenditure ceiling is not breached;
- Ballooning national debt – by providing a credible plan that will stabilize national net debt and ensure that it remains below the 52.1% of GDP level forecast in the 2018 MTBPS.
- “Zombie” state-owned enterprises – by providing credible funding plans to deal with the cash crunches that exist at Eskom and others, and
- An ever-growing list of long-term fiscal risks – such as the Road Accident Fund’s massive R206 billion excess liabilities and the uncertainty of the cost structure for a possible National Health Insurance and Fee Free Higher Education.
What will define the success or failure, of the Minister’s “maiden” main Budget will, in the end, be whether he can give hope to the 9.7 million people who do not have jobs or have given up looking for jobs in South Africa.
- Economic Growth
A credible plan to boost economic growth by an average of at least 3% will need to be presented. However, to boost economic growth and create jobs it requires a fundamental change in economic policy in South Africa. That is why South Africa needs a “policy shock” to boost economic growth and create jobs in South Africa.
The Minister should announce a package of structural reforms designed to boost investor confidence, and consumer confidence, and therefore private sector investment.
There will be no way of dealing with creating jobs and decreasing poverty unless there is a recognition that the current policies have failed, do not work and will not work. There has to be a new mindset that prioritizes economic growth and job creation in the forefront of all policy formulation.
- “Zombie” State-Owned Enterprises
Zombie State-Owned Enterprises will once again be a focus point on the Budget and will continue to drain South African resources. The biggest risk at this stage is Eskom and its mountain of debt. Due to maladministration and corruption under the ANC, South Africans will have to pay in some form or the other:
- The first option may be a part bailout by doing a debt for equity swop in the region of R100 billion – this would constitute the biggest bailout in South Africa’s history
- The second option may be for the sovereign to take over the debt service obligations only, and not the actual debt itself
An additional factor to consider is the fact that Eskom has applied for large tariff increases for the next three years, which if granted, would amount to a 56% accumulative increase over the next three years.
In the end there is now no escaping massive bailouts in some form to save Eskom financially, and South Africans will once again be forced to pay for the wrongdoings of the ANC.
When Eskom fails, the economy of South Africa fails. This cannot be allowed to happen, even if it has been brought about by theft, corruption, maladministration and incredibly foolish ANC policies.
- Revenue Shortfall and Ballooning National Debt
On top of the R27.4 billion tax revenue shortfalls announced at MTBPS 2018, we expect that the tax revenue shortfall will increase by an additional R8.4 billion since MTBPS 2018, bringing the total tax revenue shortfall since Main Budget 2018 to R35.7 billion.
Even before additional expenditure pressures, such as bailing out SOEs, the shortfall will inevitably increase the budget deficit, borrowing requirements and the already ballooning National Debt, which is estimated to exceed R3 trillion this year. This once again pushes debt stabilization out in terms of the timeframe, and up in terms of the level of stabilization.
This repeated pushing out the achievement of a stabilization of debt levels has persisted year after year for the past nine years and makes a mockery of the intention, repeatedly stated by the many successive Ministers of Finance, of achieving debt stabilization in the outer year of each budget.
The implication of this is that South Africa is projected to pay R247.2 billion in 2021/22 on merely servicing this mountain of debt. This will mean that South Africa will at least spend on debt service costs:
- Twice what we will be spending on Police Services;
- 24 times what we spend on Home Affairs;
- 9 times what we spend on Job Creation and Labour Affairs; and
- 4 times what we spend on Law courts and prisons.
Clearly, resources are deviated from productive investments such as creating fair access to jobs, protecting our borders, fighting crime and service delivery. For that reason, the Democratic Alliance has introduced a private members bill called the Fiscal Responsibility Bill that sets limits on the allowable debt levels for South Africa.
- Cost Containment and Asset Sales
Given South Africa’s financial position, we need to embark on cost containment measures.
Immediate cost containment measures that could be embarked on in the 2019/20 financial year include amongst others:
- Limiting the increase on current expenditure to be in line with inflation, this alone will bring about R26.2 billion in savings;
- Reduce the cabinet by about 20 ministries, which will could save an estimated R670 million in 2019/20;
- Block all incoming ministers and deputies of the sixth parliament from;
- Buying new cars;
- Upgrading ministerial houses;
- Purchasing new office furniture.
- Running the provincial legislatures more efficiently, which could save an estimated R1.9 billion in 2019/20; and
- Reducing the number of foreign missions by 69 from 125 to 56.
The Minister should also be looking seriously at the sale of non-core assets as has been frequently professed by other finance ministers before him.
The following are a few obvious candidates for sale relatively quickly and could realize R29.4 billion:
- Telkom shares = R14.9 billion
- Gripen fighter jets = R14.5 billion
Conclusion
South Africans are faced with having to fund the consequences of ten years of the failing ANC’s maladministration, corruption and policy chaos. It is not directly the fault of South Africans – but they have no choice but to bite the bullet and foot the ANC’s bill.
What the Minister of Finance must do is to minimize the impact on ordinary South Africans, especially the 9.7 unemployed South Africans, by taking a robust position to reduce current expenditure to make funds available to fund the legacy of ANC excesses- such as keeping Eskom’s lights on, so that the South African economy does not collapse and will rather grow and create jobs.
In our response to the budget speech, we will put forward even more solutions to the problems facing the economy of South Africa but ultimately, the power to change South Africa’s fortunes lies in the hands of every voter on the 8th of May.