2022 Budget moves us in the right direction – BLSA

But there is still much work to be done to restore the country’s fiscal position.
Enoch Godongwana shakes hands with President Cyril Ramaphosa ahead of delivering his speech at the Good Hope Centre in Cape Town. Image: GCIS

Finance Minister Enoch Godongwana produced a good maiden budget that managed to expand expenditure in some areas while ensuring that government remains on track to consolidate its debt outlook.

The 2022 Budget was also growth-positive in that taxes were largely unchanged and National Treasury recommitted to the structural reforms called for to deliver faster economic growth.

Treasury delivered on its commitment to reduce the corporate income tax rate by 1%, having removed several other tax incentives recently. While fiscally neutral, it does simplify the tax system which is positive for the business environment.

Also positive for the growth outlook was news that implementation of critical structural reforms contained in the Economic Reconstruction and Recovery Programme, particularly in electricity, rail, ports and telecommunications, are being accelerated. As Godongwana said in his speech, infrastructure investment is the backbone of a thriving economy.

Read:
Government recommits to infrastructure investment to support economy
Budget highlights: What you need to know

BLSA is also encouraged that National Treasury will be implementing the results of a recently completed review of the public-private partnerships (PPPs) framework and that a centre of excellence for PPPs and other blended finance projects will be created.

BLSA has highlighted that the complexities of PPP regulation are a significant constraint to delivering greater private sector investment into public sector infrastructure and we hope the reform process resolves these constraints speedily.

Bounce-back loan scheme

We are also encouraged by the bounce-back loan scheme that was announced. This has the potential to help sectors of the economy that have been seriously hurt by the pandemic, particularly hospitality and tourism.

For it to succeed, businesses should be given maximum flexibility in how they use the funds and the repayment obligations.

Many of the businesses that have been damaged are substantial employers but have not been able to access finance to invest in reopening. We hope the scheme is of value particularly for these companies.

Treasury’s revision of its economic growth estimate for 2021 to 4.8% from 5.1% at the time of the medium-term budget policy statement (MTBPS) makes sense given SA’s challenges and the difficulties faced by the global economic environment.

Read: Economic growth forecast at 2.1% this year

The downward revision of 2021 growth was inevitable, but this really highlights how important it is that we implement growth-enhancing reforms as soon as possible.

Treasury cannot do this alone – we need to see evidence of the whole cabinet acting together to drive through reforms that reduce the cost of business and ensure businesses can invest and grow the economy.

The debt burden remains concerning. This year, government debt has reached R4.3 trillion and is projected to rise to R5.4 trillion over the medium term.

Debt-servicing costs

This means debt-service costs will average R330 billion annually over the medium-term expenditure framework, a huge drain on available expenditure that could instead be funding investment and social services.

This is a legacy of the excessive and unproductive debt built up over the decade after 2008.

The lesson we cannot forget is that debt should be incurred only when it finances investment that will drive economic growth instead of consumption.

Treasury is making progress in undoing this legacy, with the consolidated budget deficit projected to narrow from 5.7% of GDP in 2021/22, to 4.2% of GDP by 2024/25.

Treasury now expects to realise a primary fiscal surplus by 2023/24. The debt ratio will stabilise at 75.1% of GDP by 2024/25, three percentage points lower than projected when the MTBPS was tabled. This is significant progress in regaining investor trust – that government has regained control of its finances.

It is important that we continue this path to eventually regaining investment grade credit ratings, enabling us to reduce the cost of debt.

Strengthening the courts

We are also encouraged by the resourcing of the justice system, including strengthened courts. The Department of Justice and Constitutional Development’s allocation was increased by R1.1 billion, while the Office of the Chief Justice will receive an additional R39.9 million.

The key question is whether this will be sufficient – in our view there will need to be additional resources, some of which might be available from business and other social partners.

BLSA agrees with the minister that corruption is a major blight on our country that has hampered our economic growth potential and increased our fiscal vulnerability.

We agree wholeheartedly with his assertion that accounting officers need to ensure that their procurement processes have integrity, provide value for money, and are free from interference from politically connected persons and bidders.

Read: SA’s corruption busters short-changed on funding and political commitment

Social grants

Regarding social grants, we support the minister’s view that government is unable to introduce a permanent social grant unless tax revenue significantly increases. This is the correct approach: long-run social grant commitments can only be funded out of permanently higher government revenue.

Such revenue accrues from economic growth. The minister is putting the cart and horse in the right order: growth has to lead to increased social spending.

Social spending that is not funded out of growing revenue results in a deteriorating fiscal position and loss of investor confidence, ultimately leading to worse growth, triggering a vicious cycle.

We agree with the minister that now is not the time to increase taxes and BLSA welcomes the news that individual tax rates will not be increased and, for the first time since 1990, there will be no increases in the general fuel levy or the Road Accident Fund levy.

The employment tax incentive will be expanded through a 50% increase in the maximum monthly value to R1 500.

Read:
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Why are businesses not investing, growing and employing more people?

The employment tax incentive is a positive way to use state resources to deliver greater employment. I want to ensure that businesses take advantage of the opportunity to get more young unskilled workers into jobs.

Bailing out SOEs

However, the budget also had to contend with seriously negative aspects of public sector performance. Most obvious is the R308 billion that has been directed towards bailing out failing state-owned enterprises (SOEs).

This is an enormous financial drain on the state for institutions that should be able to run efficiently and fund themselves.

It is critically important that the review of the future of our SOEs by the Presidential State-Owned Enterprises Council results in long-term solutions. The future of SOEs must be informed by the value they create and whether they can be run as sustainable entities without bailouts from the fiscus.

Read: More than R308bn directed to bailing out failing SOEs

While government continues to support Eskom to remain financially sustainable during its transition, the power utility is faced with a large amount of debt that remains a challenge. It was encouraging that the minister highlighted work that Treasury is doing to develop a sustainable solution that is fair to all stakeholders.

The restructuring and unbundling of Eskom’s main units is key to long-term energy system stability and value for money.

Treasury is extending the first phase of the carbon tax to December 31, 2025. This means that the large emitters of our greenhouse gas emissions have been given another three years to bring in new technology to reduce these emissions.

This is obviously a challenge to our goal of reaching zero carbon emissions by 2050 and it is important that this extension be temporary.

State of municipalities

BLSA believes that the state of our municipalities urgently requires support and welcomes the addition of R28.9 billion to the local government equitable share. As the minister emphasised, these funds must be used for the purpose they are meant for.

At present 175 out of 257 municipalities are in financial distress.

That is a massive negative for businesses that often find themselves left without basic services or having to waste resources on creating parallel infrastructure. It is clearly in all our best interest to get local government working efficiently and effectively.

Public wage bill

The minister’s assurance that the historically rapid increases in the public sector wage bill will be curtailed is to be applauded.

Compensation spending will now increase marginally, from R665.1 billion in 2021/22 to R702 billion in 2024/25, at an average annual rate of 1.8%.

A Public Sector Labour Summit is scheduled to take place from March 28 to 31, which will be an excellent opportunity for all stakeholders to initiate the development of sustainable public service and remuneration guidelines.

While the country is far from being out of the woods, our finances have improved from the worst.

There is still much work to be done to restore our fiscal position to enable the kind of investment and social spending that would provide a better life for all South Africans.

BLSA looks forward to working with government and our other social partners to deliver that.

* Busi Mavuso is CEO of Business Leadership South Africa.

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When the owner of resources does not have the capital or skills to monetize those assets he gets a partner. The owner provides the land, factory, or mining infrastructure and the partner provides capital and skills.

What does the government bring to the party for them to demand a partnership in a PPP? It is only in a communist state where the means of production belong to the state. The means of production are owned by private companies and individuals in free nations with growing economies.

This bright spark idea of government to move forward from their own incompetence and criminality that caused the destruction of the resources under their control is simply a move towards economic fascism. They frantically cling to centralized control of resources by the SOEs that provide a cozy sanctuary to incompetent and criminal ANC cadres and overpaid Cosatu members, and then they invite investors to do the work and to provide the capital.

Economic fascism is still about the central planning of the economy and the nationalization of resources. We are still moving backward, not forward. Central planning cannot drive economic growth. We need a free market where all SOEs and municipalities are privatized. This idea of PPPs is simply a desperate attempt to ambush more private skills and capital to use the proceeds to buy populist voters. They will have to force pension funds to take part in this scam. Watch this space.

“Fascism is the stage reached after communism has proved an illusion.” – August von Hayek

Two Cows …. I think we may have reached Fascism …

Socialism: You have two cows. You give one to your neighbor.
Communism: You have two cows. You give them to the government, and the government then gives you some milk.
Fascism: You have two cows. You keep the cows and give the milk to the government. The government then sells you milk.
Capitalism: You have two cows. You sell one and buy a bull.
Nazism: You have two cows. The government takes both and shoots you.

SA ANCism You have two cows which the regime takes without paying you anything then makes you pay a premium for the milk if you have a pale skin. The regime doesn’t feed the cows which die.

Private business under the ANC:

You have three cows. The government forces you to empower your lazy neighbor by lending him the money to buy a 30% share in your dairy. The bank, which finances the transaction, takes 2 cows as collateral for the loan and takes the milk of 2 cows to service the loan. By the time the loan is paid off, your cow has died and the neighbor who contributes nothing now owns 50% of your dairy and takes 50% of your milk. Unfortunately, it does not end there. To reach the required BEE score you have to buy fodder from a BEE supplier who loads the tender by 70%. He charges you the milk of one cow to supply fodder for three cows.

You started a dairy with 3 cows. You never made a profit because you had no milk to sell. Now, you own one cow and no milk, while the BEE beneficiaries have all the milk and 50% of your cows. Everybody, accept yourself, make money from your business, while you do all the work, and spend your life at the backside of a cow, doing artificial insemination for the benefit of other people.

They call this empowerment. Others may call it legalized plunder. No sane person will ever start a dairy in South Africa.

End of comments.

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