Medium term budget: Government spending not sufficiently curbed – Solidarity

27 October 2016

Following the medium term budget speech, trade union Solidarity said today that the budget does not go far enough to definitely curb government spending over the medium term; sufficient market-oriented reforms have also not been announced.

According to Solidarity Research Institute researcher Gerhard van Onselen, government’s fiscal space to manoeuvre is under a great deal of pressure. “The current limits on the increase of government spending projected in the budget are not enough to adequately support fiscal resilience. If lower tax revenues were to realise, than what is currently budgeted for, then budget deficits and debt levels would simply increase even more. If economic shocks similar to those of 2007-2008 were to occur over the medium term, budget deficits could spike dramatically,” Van Onselen said.

According to Van Onselen, unexpected increases in government debt and budget deficits will accelerate the slide to junk status of the South African government’s credit rating, and by implication that of the country.

“The only sustainable way out is to broaden manoeuvrability in the budget by curbing state expenditure, and by undertaking market-related reforms such as the largescale privatisation of state-owned institutions and by reducing interventionism,” Van Onselen explained.

“Higher taxation is not a sustainable solution as it will further hamper the private sector and economic growth,” Van Onselen added.

Issued by Gerhard van Onselen, Economic Researcher: Solidarity Research Institute, 27 October 2016