A Budget to cut food prices, fight poverty, and inspire growth

25 October 2022

Please find attached photos here and here.

Today, we presented the DA’s alternative Medium Term Budget Policy Statement (MTBPS) for 2022, amidst a government induced economic crisis of more debt, slow growth, record unemployment, unreliable energy, and the rapidly rising cost of living. Our economy can be rescued and placed on a path to recovery and growth. Our alternative MTBPS sets out how this can be achieved.

South Africa’s post-pandemic recovery has been underperforming on many fronts. Our economy finds itself trapped in a manufactured self-reinforcing vicious cycle of high government budget deficits, unstable energy supply, declining foreign and local private capital formation, declining levels of GDP per capita, uncertainty on private property rights, poor national and local governance, and a vast poorly run public sector dominated by monopolistic state enterprises. The necessary economic reforms require bold policy choices from the Minister.

The DA’s Alternative Budget in February 2022 proposed a fiscal policy platform that would direct South Africa’s economic recovery towards virtuous growth to generate more jobs, reduce public debt, raise living standards, attract foreign and local investment, and alleviate the disproportionate impact of rising inflation on the most vulnerable in our society through responsible fiscal management.

The DA’s 2022 Alternative MTBPS presents how a DA government will:

Establish a base to accelerate economic growth by reforming State-Owned Enterprises for private investment and relieving the economy of anti-poor policies;

Reverse the upward debt spiral by containing debt and managing expenditure;

Fight the high cost of living to protect vulnerable South Africans by introducing a conditional Basic Income Grant, increasing support for small, medium, and micro enterprises, and reducing taxes by cutting the fuel levy and removing VAT from an expanded food basket;

Fight corruption by bolstering the capabilities of institutions that combat organized and sophisticated crime.

To realize the above set of expectations, the Minister must from the outset place an emphasis on achieving fiscal sustainability by ensuring that South Africa remains on course to achieve the fiscal targets set in the 2022 February budget.

Establish A Base for Resilient Economic Growth

The structural weaknesses in the South African economy severely constrain its ability to respond to growing international uncertainty. Without deregulating the rigid policy environment, which inhibits economic activity, building economic resilience will not be attainable, inflation will continue to surge, the rate of unemployment will spiral upwards and economic growth, if any, will remain slow. if at all positive.

No More Bailouts for State-Owned Entities

Continuous bailouts to SOE’s have financed failing entities’ debt services, salaries, and current spending on suppliers. Apart from the contribution to employee consumption, there is no

perceivable value added to growth and development in the sectors wherein these entities operate. Minister Godongwana must therefore remain firm on his pledge to not reprioritise budget items to bail out failing SOEs.

Energy Security and Loadshedding

Uncertain energy supply coupled with an unstable political environment has drastically impacted the development of South Africa and severely limited the growth potential of our economy. There has been much talk regarding solutions for South Africa’s electricity crisis, yet after 15 years of living under scarce energy supply, not enough has been done.

Based on this grim energy outlook, the DA reiterates its call for the privatisation of Eskom and the opening up of the energy sector to Independent Power Producers (IPPs) as continued state ownership of the entity has not served to benefit the poor. We reject any plan to transfer Eskom’s debt onto the national balance sheet.

BBBEE (Broad Based Black Economic Empowerment) As a Failed Policy

As a developing country with a massive labour force at its disposal, South Africa should be experiencing continuous virtuous growth. Instead, race-based labour market legislation has facilitated corruption, elite enrichment, and unskilled cadre deployment on an industrial scale. The South African economy and its citizens, especially the poor, have borne the consequences of this distorted labour system. By excluding the full participation of those who are capable, our economy has become far less efficient than it could be.

Reducing Gross National Debt

The 2022 MTBPS must provide a fiscal framework that is focused on reducing the deficit whilst stimulating growth through responsible spending. To ensure that this approach is sustainable, it is important that South Africa urgently addresses the interdependent challenges of a high debt burden, increasing deficit spending, and low economic growth.

Through the implementation of the DA’s economic policy framework, we are able to show how we would bring our national debt under control at an accelerated pace and consolidate South Africa’s fiscal position sooner than the ANC government by generating sufficient economic growth.

Managing Government Expenditure

The increase in debt and deficit spending did not result in increased spending on infrastructure and capital formation - instead, government salaries, specifically the ‘millionaire manager’ class, ballooned beyond what can be considered as sustainable and justifiable.

Support for Vulnerable South Africans

Poor, and vulnerable South Africans continue to shoulder most of the economic burden caused by a sluggish post pandemic recovery. This is compounded by unstable international conditions and hostile government policies that discourage economic participation and increase living costs.

The DA’s intricate policy reform framework enables the financing for the rollout of a vast and sustainable social welfare net. It does so not by spending lavishly, but through generating economic growth that is guided by the DA’s policy.

Basic Income Grant (BIG)

The DA will provide conditional direct income support for the most vulnerable in our society. It will pay for this by accelerating economic growth and generating the necessary revenue. Government seeks to position the provision of a basic income grant as an either or. If it is to provide the grant, it will argue that tax increases, on VAT in particular, will be required. This is a trade-off because government has mismanaged the people’s money and is unable to self-correct its corruption riddled behaviour.

If government implements the requisite policies to spur economic growth and contain debt, a basic income grant becomes viable. If the grant is not funded by growth the large immediate expansion of social transfers would threaten fiscal sustainability and lead to significant employment losses by actually decreasing economic activity and growth.

The DA can budget for the introduction of a conditional Universal Basic Income Grant at R585 per month for adults between the ages of 19 and 59. The grant would be made available on the understanding that it would only be provided when revenue generated from GDP growth is available, as would be the case given the implementation of the DA’s policy framework.

Small-, Medium-, and Micro Enterprises (SMME) support

If the government seeks to alleviate poverty and inequality, the best steps to take are in the direction of reducing the cost of living and creating conditions that are favourable to plentiful employment. This is particularly relevant for the SMME sector.

This approach requires an environment of low-cost compliance with regulations, low tax rates, low costs of transactions and reasonable transport costs. It also requires a transparent marketplace that isn't dominated by politically dominant cartels and subservient-to-cartels government agencies.

No Increases in Taxes

Our alternative budget in February 2022, set out several proposals for tax relief. Given the current cost of living emergency, tax on fuel and an expanded zero-rated VAT food basket must be considered now, and not deferred until February 2022 We have proposed that the zero-rated food basket be expanded to include bone-in chicken, beef, tinned beans, wheat flour, margarine, peanut butter, baby food, tea, coffee and soup powder.

Commit to the Bolstering of Corruption Busting Institutions

Corrupted economies are not able to function properly because the very nature of corruption disturbs the market and thereby prevents the natural laws of the economy from functioning freely. Given that billions have been directed towards bailing out dysfunctional SOEs, the 2022 MTBPS and 2023 Budget provide the perfect opportunities for the Minister to direct funds that have been misappropriated and wasted throughout other Ministerial departments towards law

enforcement agencies that combat specialized and organized crime such as corruption, money laundering, and terrorist financing. This is especially urgent following the Financial Action Task Force report that identified significant shortcomings in the South African financial system in combatting money laundering and preventing the flow of funds for the financing of terrorism. South Africa faces the real prospect of “greylisting” in February 2023 and this will present even more hardship for struggling South African households.

Conclusion

Our economy is in crisis and households are now facing the devastating consequences of decades of government mismanagement of the public finances. The cost of living is spiralling upward, while government remains fixated on its hopelessly failed economic model.

There is no silver bullet, and the South African economy is surrounded by endless possibilities. If we do not divert from the disastrous path that government has paved, we will never see the growth rates we are so capable of reaching and the people of South Africa will never become everything that we are capable of becoming.

Issued by Dion George, DA Shadow Minister of Finance, 25 October 2022