Budget speech postponement shows GNU is not a rubber stamp

The postponement of the budget speech shows that the GNU is not a rubber stamp as there was disagreement about increasing VAT by 2%.

Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), says the failure of the government of national unity (GNU) to resolve its differences over the budget is disappointing and negative for business sentiment.

“On the other hand, it shows that the parties of the GNU can stand their ground, showing that the GNU is not going to rubber stamp business as usual. It is now critical that the GNU demonstrate that doing so leads to an improved outcome, a budget that they are united behind that delivers for economic growth. The delay is a shock to the public as well as investors here and abroad. Restoring confidence is the first priority.”

She emphasises that the fundamental requirements for the budget will not change between now and 12 March. “Government must balance its books. It must ensure that it has the revenue to cover its expenditure. That takes hard choices that will not go away.

“In making those choices, economic growth must be top of mind. To deliver that we must show we are on top of our debt and focusing expenditure on growth-enhancing investment. Only growth can enable sustainable increases in government expenditure.”

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GNU must not let budget speech postponement undermine final budget

Mavuso says government has spent the last four years restoring confidence of all stakeholders that South Africa can escape a debt spiral that would have left the country with few options apart from a bailout from its creditors.

“It is critical that hard work is not undermined in the process of finalising the budget now. We must prioritise delivering on our promises that the debt to gross domestic product (GDP) ratio will peak in the near term and then head downward. We cannot undermine the fragile trust that global investors have regained in us.”

She says according to reports the parties of the GNU were deadlocked at a Cabinet meeting immediately before the announcement over the planned VAT increase from 15% to 17%. “It is clear that budget process did not give adequate time for consultation between members of the GNU.

“While National Treasury is rightly concerned that market-sensitive information must be handled appropriately, it must take the GNU into its confidence and Cabinet members must protect the information they are privy too. The members of the GNU share a responsibility to ensure the efficient development of the budget.”

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Any budget requires difficult decisions

Mavuso points out that any budget requires difficult decisions and these decisions must be guided by evidence on which decisions best support government’s objectives. “Government must balance its books and do so under serious pressure created by the lack of economic growth and the legacy of misspending during the state capture era.

“It is critical that investors have confidence in government’s ability to manage its finances before they can put their capital at risk in backing long-term investments.”

She says the parties of the GNU must all strive to ensure that government’s books are balanced. “While the delays reflect a standoff over increasing VAT, the reality is that government must find the revenue required to cover its costs.

“It cannot damage the progress government has made in regaining investor faith, seen in several ratings agency outlook upgrades. South Africa must continue its path towards regaining its investment grade credit rating, which would substantially improve our ability to attract investment.

“That means having a credible pathway that reduces our debt to GDP ratio over the medium term. There are only two ways to do that: reduce spending or increase taxes. Spending can also be pro-growth if it is focused on investment rather than consumption, funding the construction site that President Cyril Ramaphosa envisaged in the state of the nation address.”

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GNU must acknowledge trade-offs are needed

Mavuso says ultimately there is no getting away from the disappointment business feels over this delay but she hopes the GNU can urgently provide a clear way forward that business and investors can rely on.

The GNU must demonstrate maturity and acknowledge that trade-offs are inevitable but that there is a path that builds investor confidence and supports growth and that all parties in the government are 100% committed to it.”