MTBPS: Expert warns of borrowing necessity as tax increases off the table

If Finance Minister Enoch Godongwana’s hands are so tied he cannot deal with the current public budget spending crunch, he will have no option but to resort to borrowing, which will precipitate an increase in the country’s foreign debt, political economy analyst Daniel Silke says.

MTBPS: What to expect

Godongwana will present his medium-term budget statement, or mini budget, tomorrow.

“He can’t increase taxes because that would further burden the already overtaxed middle class, nor could he be thinking about raising VAT, which affected the poor … especially towards a crucial election in 2024.

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“At the same time, he can’t afford to be generous with money. If the country intends to come out of the current situation unscathed, it will have to borrow, despite that not being the best option considering South Africa’s precarious fiscal position. However it would be the lesser of two evils,” said Silke.

He cautioned against thoughtless borrowing to alleviate the budget crunch.

“The crunch comes at the worst possible time for the ANC, given it’s under a year before the next election.

“It really does indicate there is not that much money to go around. Surely it’s not that much money for a party facing … a very critical election in just under a year. The ANC and South Africa’s hands are really tied when it comes to spending, so that’s the first point,” he said.

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“Politically, this is an awkward time not to have cash to be a little more generous. After all, you do want to be generous in an election year, especially when you are a little afraid of perhaps losing your majority at the ballots.”

Trimming of Cabinet

Silke said there were few options for South Africa in terms of how to alleviate the spending crunch because the usual suspects for price increases – taxes, basic foodstuffs or VAT – were out of bounds.

“So you are really stuck in terms of how to get additional revenue,” he said. “There should be some trimming in terms of the Cabinet … there are certain departments, certain areas, that can be trimmed.”

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The analyst put infrastructure, along with energy – especially Eskom – as two non-negotiables when it came to spending.

“We can’t stop spending on critical issues like infrastructure. We’ve got to build infrastructure (because) we’ve fallen way behind over the last decade or so – if not longer,” Silke said.

– ericn@citizen.co.za