We cannot afford a business-as-usual MTBPS 2015 with 8.4 million people unemployed
The real test of Minister of Finance Nhlanhla Nene’s medium-term budget policy statement (MTBPS) will be whether he gives hope to the 8.4 million people who do not have jobs and who live without dignity and freedom in South Africa.
The economic outlook is grim:
- economic growth projections are likely to be revised down to 1.5% in 2015/16;
- unemployment is increasing, with 8.4 million people who do not have jobs, or have given up looking for jobs;
- the consolidated budget deficit is projected to be R162.2 billion, or 3.9% of GDP, in 2015/16; and
- debt has ballooned with gross domestic debt now projected to be R1.98 trillion, or 47.3% of GDP, in 2015/16.
- Debt service costs are the fastest growing expenditure item on the budget: we will spend R420 billion on servicing debt between 2015/16 and 2017/18, which is, staggeringly, nearly double the education budget for 2015/16.
The situation is so acute that, with a primary budget deficit of R29.7 billion, we will have to borrow in order to pay the R132.4 billion projected interest payment in 2015/16.
The R12.6 billion public sector wage agreement wiped out the R5 billion unallocated reserve and has left the Minister scrambling to finance the R7.6 billion shortfall from projected savings and under-spending in 2015/16.
The debt situation is even more acute if one considers looming fiscal risks including “zombie” state-owned enterprises, such as South African Airways, and long-term policy options under consideration, such as the nuclear build programme.
In the end, with weaker-than-expected growth, lower-than-expected revenue and higher-than-expected expenditure, it is difficult to see how the Minister will narrow the budget deficit, stabilise public debt and rebuild fiscal space.
We simply cannot afford a business-as-usual medium-term budget policy statement.
The ratings agencies will be watching the Minister like hawks and even a whiff of fiscal slippage may cause a sovereign rating downgrade, which will increase borrowing costs.
What we need is a medium-term budget policy statement that is ambitious and aimed not just at balancing the books, but also at lifting the economy out of the low-growth, high-unemployment spiral by:
- dealing with policy uncertainty by reinforcing the message that the National Development Plan is not open to negotiation;
- scrapping policies preventing economic growth and jobs creation, such as the visa regulations that are crushing jobs in the tourism sector;
- announcing significant economic policy changes to deal with the structural constraints to economic growth and job creation, including measures to deal with the inflexible labour market;
- avoiding tax increases by implementing real cost-containment measures on consumption expenditure including reducing the size of the executive;
- increasing revenue by ensuring that state assets will be sold, leased, donated and written-off to save costs and raise revenue to fund investment spending;
- rebalancing spending from consumption expenditure to investment expenditure;
- incentivizing private sector investment by privatising, or part-privatising, “zombie” state-owned enterprises; and
- terminating unaffordable mega projects such as the proposed nuclear build programme.
In the end, if the Minister’s medium-term budget statement is business–as-usual, there will be very little hope for the 8.4 million people who do not have jobs, or have given up looking for jobs in South Africa.
Issued by David Maynier, DA Shadow Minister of Finance, 19 October 2015
