MTBPS does not show a clear path to economic recovery
11 November 2021
We welcome Minister Enoch Godongwana’s commitment to applying the unexpected revenue increase, from the cyclical commodities boom, towards addressing the budget deficit. We also welcome the Minister’s commitment to not make additional allocations to the State-Owned Enterprises and the additional appropriations to Defence.
The Minister however fell far short of our key expectations to shore up the economy. Our focus was on:
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
The Minister mentioned energy generation , but did not provide any additional detail on what steps will be taken to relieve the current power crisis that prevents economic growth.
He mentioned structural reform but they do not address the key challenges identified by the rating agencies and the IMF and the World Bank, some of which include making it easy to do business and reform the labour market.
We would have expected the Minister to demonstrate some urgency on ensuring energy stability to support business that is heavily dependent on the power supply.
The MTBPS is entirely driven by the short-term commodities boom and there is no meaningful plan to sustainably grow the economy beyond just being a passive recipient of favourable global conditions.
Reducing gross national debt and managing expenditure
The 2021 MTBPS indicates that debt will now consume more spending than health, social development and peace and security combined. In effect paying more for debt than we pay for nurses, doctors and teachers.
The MTBPS only anticipates stabilising the debt to GDP ratio at 78.1% by 2026.
It remains clear that the pathway to stable public finances remains blocked by government’s hopelessly inadequate economic policy.
The Minister failed to mention any progress on managing the public sector wage bill and concedes that it is growing at a faster rate than GDP.
Supporting the vulnerable
We welcome the short-termsupport provided to South Africans suffering under the consequences of hard lockdowns and long-term unemployment. We are however concerned that provincial equitable share (as used to fund mainly healthcare and education) is facing reductions over the next 3 years both in nominal and real terms. This is a real risk to frontline service delivery and we would have hoped that the minister would have made more of an effort to protect front line service.
Committing to no tax increases
An announcement on tax would have provided certainty to an economy desperately looking for certainty to ignite growth. We urge the minister to at the very least adjust tax brackets for fiscal drag as this has not been addressed adequately for last decade.
Leveraging Pension Fund assets
We welcome progress announced on pension reform although the detail remains unclear. Although he mentioned a potential “two-pot” system, he has remained silent on proposals to permit members to leverage their pension in the form of surety for a loan. The DA will be submitting a written contribution to the discussion document to be released by Treasury before the budget speech in February.
Conclusion
The DA’s alternative MTBPS for 2021 set out a clear path for a resilient post pandemic economic recovery for South Africa that will drive growth and ensure fiscal sustainability. While the Minister has fallen short of our expectations, we look forward to him redeeming himself when he tables his budget speech in February 2022.
Issued by Dion George, DA Shadow Deputy Minister of Finance, 11 November 2021
