The DA’s Alternative Budget 2021: Only the DA will get debt under control

22 February 2021

Note to Editors: This statement follows the DA’s Alternative Budget delivered today. This statement accompanies the DA’s Alternative Budget document, available here. 

The Democratic Alliance (DA) is pleased to present our Alternative Budget 2021.

This Alternative Budget focuses on the roots of South Africa’s economic crisis: too little growth and too much debt.

Debt:

South Africa’s debt is unsustainably high, and is too expensive. If we do not bring the price of our debt down, which is intrinsically linked to bringing the quantum of our debt down, then we will not avoid a full-blown debt crisis.

The consequences of this will be profoundly negative: wider impoverishment and deep cuts to social spending.

No one should want this to happen to South Africa.

And yet despite their own ever more dire warnings, the government continues to plunge deeper into debt.

Tito Mboweni has increasingly become a ‘Spectator Minister’ – he speaks as though he is watching events from the outside, rather than a key player with the power to change events himself. He frequently lectures to the country about the dangers of our debt situation, as if it is the country, and not he who delivers the Budget.

He has reneged on his ‘active scenario’ debt control plan, reneged on his ‘no bailouts’ promise, and has left the government’s key reform strategy, “Operation Vulindlela”, to his Deputy Minister.

The DA is now the only party of government in South Africa that is committed to restoring fiscal discipline, to getting our national debt under control, and to protecting essential social services from strangulation by ever-rising debt costs.

We provide a credible plan to get South Africa’s debt under control, and get our economy growing.

Yesterday, we released a graphic to bring the point home to every home and family.

Every child born in South Africa today carries the burden of a R67 000 share of the national debt before they have taken their first breath.

We are impoverishing future generations even before they are born. This is wrong. They deserve better.

Every family, parent, grandparent, small business owner, and all who have a stake in the future should know that the DA is the only party of responsible finances, that will secure the future for all.

Growth:

Growth is the only way to pull South Africa out of the fiscal crisis it faces, without having to effect deep and painful spending cuts across the state.

Absent faster economic growth, government will be forced into a new phase of having to choose which services can remain, and which will have to be cut.

The DA has now decided to press ahead with this agenda for reform, by tabling every one of the most critical reform measures in Parliament, and by pressing ahead with this reform agenda where we are in government.

Alternative Budget Proposals:

This Alternative Budget shows how a DA government would:

Roll out a fully funded vaccine programme:

The top new spending priority for the National Treasury should be the funding of a comprehensive nationwide vaccine rollout.

We budget fully for this cost: R35 billion

It would be unacceptable for the Minister to present anything less than full funding for the vaccine rollout. This would render the budget a failure.

Protect social spending:

The poor and most vulnerable should not pay the price for years of bad government and profligacy. Government spending on direct cash support for the poor should be protected from cuts at all costs. We are committed to protecting inflationary increases in social grants, health, and education.

 We budget for social grant increases of R30,1 billion over three years.

Protect working families from higher taxes:

We expect that the Minister may introduce new taxes of between R5 and R10 billion. This would be a mistake. We cannot tax South Africa’s economy back to growth.

South African families and businesses have gone through a terrible year, and face enormous stress and strain. They cannot afford any more taxes.

Stop bailouts:

We expect yet more bailouts for SAA and possibly more for Eskom as well, along with a figure between R5 billion and R10 billion for the Land Bank.

These bailouts are morally repugnant because they all come at the cost of cuts to essential basic service delivery. We oppose them strongly.

Protect wages for frontline workers:

While we have written extensively about the need to lower the public wage bill, this burden should not fall on frontline  service delivery staff – mainly nurses, teachers, and police officers – who are poorly paid relative to middle and senior management in government.

We budget for inflationary increases for all frontline staff.

Budget for growth:

We cannot hope to grow our economy so long as it is strangled by loadshedding.

Where the DA governs, we will pursue buying independent power to end loadshedding.

To support this, we propose that National Treasury establish a Cities Support Team to help cities procure independent power responsibly. We budget R250 million for this support.

We also budget R4 billion over the period for our Emergency Solar Power Rebate. This rebate would save 480 mega-watts in electricity at an assumed uptake of 100 000 rebates over 4 years.

The DA’s core proposals for savings:

We appreciate that this it is not easy to cut budgets. But it is infinitely easier than what will come if South Africa is allowed to descend into full-blown debt crisis.

We choose to protect services to the poor while focussing cuts on the rest of government.

We show that, without any nominal spending cuts, and by freezing nominal allocations at the October 2020 limits, we can protect the country from heading over a fiscal cliff.

The public wage bill:

The DA’s proposed cuts to the wage bill yield savings of R116.7 billion over the MTEF.

Post reduction of 9000:

We propose to achieve savings of another R29.4 billion over the MTEF period by reducing the number of ‘millionaire managers’ in the civil service. This would entail retrenchments and a hiring freeze on all managerial positions (non-OSD levels 11 to 16) until the number of posts is reduced by a third – approximately 9 000 posts.

Nominal freeze on other departments

Spending increases should be focused on protection for the most poor and vulnerable. The DA suggests that all other departmental budgets are maintained at the nominal amounts appropriated as of the 2020 MTBPS.

Other: We propose to save an additional R33.3 billion over the MTEF. 

New innovations - The DA’s debt and growth projections:

Debt and debt service costs:

For the first time, the DA is also able to show modelling for how our proposals would get national debt under control sooner than the ANC government.

We model the spending proposals we make in this Alternative Budget, and the resultant savings in debt service costs over time. This is compared to the ANC government’s debt forecasts, which are themselves optimistic.

This shows that with very achievable spending cuts, and whilst still protecting essential social spending and frontline staff wages, the DA can turn debt around by 2024/25 and at 2.5 percentage points lower than the ANC.

We then show how the DA’s success in restoring debt sustainability sooner, means lower debt service costs, which then allow for greater investment in social spending.

By 2024/25, our model implies a saving of R10,5 billion in debt service costs compared to the government. This is R10,5 billion that can be spent on higher or new social grants, or on faster debt reduction to compound this saving later.

The Growth Dividend:

With a faster-growing economy, many of the crises in South Africa would be alleviated. Two positive dividends from growth are worth emphasising again:

Unemployment would start to tick down as new investment creates new jobs

Tax revenues would grow without any increase in tax rates.

South Africa can roll back poverty, can provide much greater support for the unemployed, and can invest in new infrastructure and smart cities. It can do all of this and more if, and only if, it reaps the dividend of sustained higher economic growth.

The converse is also true. So long as the economy stagnates, South Africa will not be able to afford these things.

That is why making meaningful progress on a programme of wide-ranging economic reforms is so essential to position the economy for growth.

We show how achieving economic growth ofjust 1.5 percentage points above the current average growth rate, resolves the national debt crisis.

This is why the DA is obsessed with achieving higher economic growth.

Conclusion

This Alternative Budget shows that the DA is the party of economic growth in South Africa, and the only party with a credible and costed plan to fix the ANC’s debt crisis.

We will protect social spending and bring debt down, leaving a more prosperous country for future generations.

Issued by Geordin Hill-Lewis,DA Shadow Minister of Finance, 22 February 2021