The Big Five Challenges for Budget 2016
22 February 2016
Note to editor: This was the press statement release at the DA's press conference called by DA Shadow Minister of Finance, David Maynier MP, and DA Shadow Deputy Minister of Finance, Alf Lees MP, ahead of the Budget Speech in Parliament this week.
The Minister of Finance, Pravin Gordhan, will table the budget in Parliament on 24 February 2016. However, the Minister is in a tight spot with very little fiscal space, and even less political space, available to respond to the economic crisis and the risk of a sovereign ratings downgrade in South Africa.
The view that the Minister has a “free hand” to do what he likes seems exaggerated, especially given the back peddling on retirement reform, relating to the Taxation Laws Amendment Act (No. 25 of 2015), following political pressure from COSATU.
In our view, the Minister faces five big challenges going into the budget, including (1) dealing with high levels of unemployment; (2) avoiding a sovereign ratings downgrade; (3) providing relief to poor households; (4) dealing with the student fees crisis; and (5) providing drought relief.
To deal with high levels of unemployment, and give hope to young people who do not have jobs, or who have given up looking for jobs, we believe the Minister should review the implementation of the Employment Tax Incentive and allocate funding to provide for the rollover of the Employment Tax Incentive.
And to deal with the risk of a ratings downgrade, we believe the Minister should pursue aggressive fiscal consolidation, including inter alia:
- raising revenue through asset sales rather than tax increases, including the sale of non-strategic liquid assets, such as the sale of government’s stake in Telkom, and non-strategic immovable assets, such as land and buildings, which could raise billions of rands in revenue;
- implementing real spending cuts by conducting a comprehensive spending review on (1) the composition of spending, (2) the efficiency of spending and (3) future spending priorities with a view to identifying savings and eliminating wasteful expenditure; and
- implementing the findings of the Presidential Review Committee on State Owned Entities, including “Recommendation 20”, providing for private sector investment, including the privatisation, or part-privatisation, of failing state-owned enterprises.
To provide relief to poor households battling food price inflation, we believe the Minister should provide social grant beneficiaries with an above inflation-related increase in 2016/17.
And to deal with the student fees crisis, we believe the Minister should provide (1) additional funding for students who qualify for funding through the National Student Financial Aid Scheme; (2) increases in university subsidies to prevent the need for above-inflation fee increases and to provide for investment in faculty, equipment and infrastructure to support students; and (3) call on the private sector to assist to overhaul the funding model and debt-collection system employed by the National Student Financial Aid Scheme;
To deal with drought relief, we believe the Minister should make additional funding available to be used for loans and grants to farmers, wage subsidies for farmworkers, feed packages to sustain livestock, and education programmes on farming in low-water conditions.
However, to get the economics right, the Minister will have to get the politics right.
The Minister’s capacity to do things differently is limited by the political space available inside the ANC/SACP/COSATU alliance.
And the temperature inside the ruling party alliance is already red-hot following the battle over retirement reform.
All this will limit the Minister’s ability to effectively respond to the economic crisis and the risk of a ratings downgrade in South Africa.
Full report available here.
Statement issued by David Maynier MP, DA Shadow Minister of Finance, 22 February 2016
