02 MARCH 2020
Budget: Difficult policy choices still lie ahead for SA
by Raymond Parsons: Professor at the NWU School of Business & Governance and a former special policy adviser to Busa.
The Budget confirms the extent to which the SA economy still finds itself in a bad space, requiring a strong emphasis on measures to boost job-rich growth. The 2020 Budget Speech given to Parliament by Finance Minister Tito Mboweni was seized with a greater sense of urgency about the critical economic and fiscal challenges faced by SA and offered a difficult balancing act for addressing them in what have become very stressful economic circumstances. It also highlighted the need for collaborative leadership among government, business and labour.
Given the consequent pressure on state revenues, the substantial Budget commitment to reduce the public sector wage bill is a very important economic and political step towards creating a better balance between government current spending and its investment outlays. The emphasis was on fiscal consolidation as the way forward, rather than increasing the overall tax burden at this stage. It is welcome that there have been no personal or corporate tax increases, and in fact some tax reductions, as a recognition of the fact that diminishing returns have set in from expecting more revenue from yet higher taxes.
Both on the revenue and spending sides of the Budget it is again evident that further progrowth reforms must be urgently implemented to put the SA economy on a higher growth path and to relieve the fiscal strain. The economy must now break out of its ‘low growth trap’ of about 1% in the foreseeable future. The impact of the various proposed Budget remedies will continue to depend heavily on successful and tangible implementation of the planned policy steps, including the turnaround in key dysfunctional state-owned enterprises such as Eskom. Lack of security in energy supply is recognised by the Finance Minister as a major constraint on growth.
The downside risk in the Budget nonetheless remains the growth in public debt and the need for continued fiscal discipline, given the deteriorating debt arithmetic strongly reflected in the Budget numbers. This trend continues to present policy makers with difficult choices, but choices that cannot be avoided or easily postponed. The roles of the State Bank and the Sovereign Wealth Fund respectively will also require to be further interrogated to see what value they could play in promoting economic development and how they should be capitalised.
What clearly again shines through the fiscal gloom of recent years is the need for a dramatic and sustainable rise in SA’s flagging growth rate by boosting investor confidence and turning the economy around. Taking the Budget decisions as a whole it remains an open question as to whether enough has been done to fend off a Moody’s investment downgrade, which is likely to be a close call in the light of the economic and fiscal cross-currents reflected in the Budget’.