This statement follows the DA’s Alternative Medium Term Budget Policy Statement (MTBPS) that was delivered today. The accompanying DA MTBPS briefing document is available here
Today, we presented the DA’s alternative Medium Term Budget Policy Statement (MTBPS) for 2021 which focuses on providing a pathway towards a post-pandemic economic recovery for South Africa.
This year’s alternative MTBPS builds on the DA’s alternative budget proposed in February and sets the scene for our alternative budget in February 2022.
The DA’s core expectations for Minister Enoch Godongwana’s maiden MTBPS include:
- Accelerating the post-pandemic economic recovery
- Reducing gross national debt and managing expenditure
- Supporting the vulnerable
- Committing to no tax increases
- Leveraging pension fund assets
Accelerating the post-pandemic economic recovery
New Finance Minister Enoch Godongwana’s first Medium Term Budget Policy Statement, to be presented on Thursday, will be a key determinant of the pace at which South Africa’s post pandemic economic recovery will unfold.
Structural weaknesses in the economy severely constrain our ability to emerge from the devastating effects of the pandemic. Without an acceleration in economic growth, the rate of unemployment will spiral upwards and GDP growth will remain tepid at best.
Government has demonstrated, over and over again, that an incapable state at the centre of our economy is unable to generate growth. Active steps are required to enable the economy to grow by removing the barriers that government has imposed.
The greatest barrier to economic growth, a prime example of our incapable state, remains government’s inability to provide a reliable power supply. Power failures are costing our economy in excess of R100 billion per annum.
Eskom remains on the brink of collapse, with outdated infrastructure and budget overruns in excess of R300 billion at Medupi and Kusile power stations.
Without a solution to the energy crisis, government will remain unable to create an environment conducive to economic growth and will remain unable to tackle our high levels of unemployment and poverty.
It is time for Treasury to enable South Africans to become independent of Eskom through a 100% solar power rebate. Eskom’s debt must be paid off to the extent that it has at least a 2:1 asset-to-liability ratio, after which it must be split up into three separate entities – generation, transmission, and distribution – and privatised as much as is reasonably possible.
Urgent steps need to be taken to stimulate economic activity, especially in the small, medium and informal sectors. More detailed proposals will be included in our Alternative Budget in February 2022.
A growing economy increases revenue, reduces unemployment and poverty and will enable us to avoid the looming debt trap that will result in significant hardship for all South Africans.
Reducing gross national debt and managing expenditure
The 2021 MTBPS should provide a clear fiscal departure away from emergency budgeting, implemented to address the short term effects of the pandemic, towards a resilient fiscal framework that is focused on a balanced budget, economic growth and drivers of job creation.
While the recent cyclical commodities boom has provided temporary reprieve to the fiscus, in the form of improved revenue, it is imperative that Minister Godongwana sets the country on a path of continued fiscal consolidation, sustainable public debt management and accelerated structural economic reform.
In order to ensure that this resilience building focus is sustainable, it is important that South Africa urgently addresses its twin challenges of a high debt burden and stubbornly low economic growth rates.
It does not help that government has consistently missed its own fiscal targets on debt containment.
South Africa cannot afford to keep going down this path of a debt based fiscal policy. The policy has only succeeded in saddling the country with high interest rates on debt repayments, slower economic growth and fewer resources to spend on growth drivers.
The DA’s modelling, presented in our February 2021 Alternative Budget, provides a clear blueprint for getting national debt under control sooner than government proposes while protecting essential social spending for the poor and most vulnerable.
The DA model demonstrated that by implementing these changes to expenditure, notwithstanding any changes to revenue, government can go from a forecasted primary balance deficit this year of R474,8 billion, to a primary balance surplus of R4.3 billion by 2023/24.
In addition, targeted spending cuts and priority spending proposals can, whilst still protecting essential social spending and frontline staff wages, help turn around debt by 2024/25 and at 2.5 percentage points lower than the ANC.
To achieve these outcomes, the DA’s proposed cuts to the public wage bill will yield R116,7 billion over the Medium Term Expenditure Framework.
Additional revenue and savings amounting to R30,1 billion can be realised from items that include, but not limited to, VIP blue light security, shutting down the NYDA and auctioning digital spectrum.
Supporting the vulnerable
Rising food and fuel costs have seen inflation rise to 5% in September which, according to StatsSA, is significantly higher than the average inflation rate of 3,3% in 2020. This has potentially devastating implications for low income households, especially those that rely on social grants.
The MTBPS should make provision to cushion the poor and vulnerable against inflationary pressures. To this end, a clear effort must be made to protect social spending by increasing direct social support to the poor.
Within the current fiscal framework, the DA model budgets for social grant increases of R30,1 billion over three years to keep in line with inflation.
The DA does not support a permanent expansion of the grant system at this stage. Due to increased revenue from the commodity boom, there may be fiscal space to extend the relief grant temporarily. However, in the medium to long term South Africa’s approach should focus on reforms which will boost growth. In an environment of strong growth, and reduced corruption and wasteful expenditure, expansion of social support as a dividend on growth and good governance could be possible.
Committing to no tax increases
Households are already heavily taxed with minimal return from government. The DA will not support tax increases or any new taxes.
The DA expects Minister Godongwana to provide finality on e-tolls, especially how the bonds that were used to build the Gauteng Freeway Improvement Project (GFIP) will be settled. We remain guided by our long held position that the obligation to repay these bonds should not be passed on to road users nor should it be financed through a state bailout.
South Africans are already paying a high price on fuel and transport costs. What they do not need is an additional tax to be added to their cost of mobility in the form of e-tolls. To avoid further uncertainty on the issue, the Minister should take a bold step and ring-fence a portion of the fuel levy to pay for e-tolls.
Based on renegotiated terms with the e-toll bondholders, government can use the ring-fenced portion of the fuel levy to settle the outstanding amount over a fixed term period not exceeding 20 years.
Leveraging Pension Fund assets
The DA is encouraged that our proposal to accelerate the pace of reform in the pension sector has finally gained traction. We expect some major announcement in the MTBPS.
The Pension Fund Amendment Bill, which I introduced in the National Assembly on 2 November 2020 as a Private Members Bill, seeks to amend the Pension Funds Act of 1956 to enable pension fund members to leverage a portion of their pension fund before retirement as guarantee for a loan. Loans will be subject to repayment affordability and surety amounts will remain invested in the fund.
National Treasury appears to favour a “two-pot” approach that will permit a once-off withdrawal of a portion of the member’s pension fund asset, either while the member is currently employed or when they leave their employer. The remaining portion will be “locked in” until retirement, even if a member leaves employment before their retirement age. Thus, a compulsory preservation.
The Minister in his MTBPS should strike a balance between allowing pension fund members to leverage their asset in the form of a loan, a pre-retirement partial withdrawal and the preservation of pension funds as a long term investment vehicle.
The DA’s alternative MTBPS for 2021 sets out a clear path for a resilient post pandemic economic recovery for South Africa that will drive growth and ensure fiscal sustainability.
As the country begins to exit the short term emergency budget instruments that were meant to address the economic impact of the pandemic, a resilient fiscal framework that focuses on growth, jobs and an energy secure future is imperative.