Finance Minister Tito Mboweni. Picture: ANA
Something more lethal than the coronavirus infects our economy. Global markets will in time recover from this week’s battering. But in South Africa the story will be different.
Recovery is less certain. If Finance Minister Tito Mboweni were to administer the correct medicine in today’s budget speech, he’d be out of a job. So instead our economy will get sicker, heading for the International Monetary Fund (IMF) intensive care unit after Moody’s throw us on the junk heap next month.
This is because South African politics is in the thrall of a destructive ideological disease which prevents us recovering from crippling debt. Huge chunks of our economy are paralysed by greed, sloth and a sense of entitlement which is used to justify what in other countries would be called corruption.
That’s why we are in a debt spiral. At the end of last year, the state’s loan debt reached 61.5% of gross domestic product. According to Business Day, on the current economic trajectory this ratio will exceed 70% by 2022 and 100% by 2030.
Right now, South Africa is unable to service existing debt from revenue. So the country must borrow to pay the interest bill. Obviously we can’t go on like this. If we try to do so, the looming Moody’s downgrade will be a mere step along the way to genuflection at the IMF.
Drastic medicine is being prescribed. Billionaire Magda Wierzycka’s recommended shock treatment includes a 2% value added tax (VAT) increase, 4% once-off tax on all retirement savings, plus a once-off 5% (extra?) tax on income. Be glad she’s not managing your personal finances.
Realistically, today’s announcement will inevitably include increased taxes, probably VAT too. The dwindling number of geese (individual and corporate taxpayers) who lay golden eggs, will be squeezed until they migrate or perish.
That’s on the revenue side.
Spending, which drags us down, includes a bloated bill for the bloated public sector, plus cash-guzzling state-owned entities, led by Eskom and South African Airways (SAA).
About R675 billion (35%) of budget expenditure goes to public sector salaries. Unsustainable, we shout. Cut, we demand. Indeed, wage increases for these folk could be more moderate. But do we really want fewer teachers, nurses, and police? And should they be paid less?
Parts of the public sector should be targeted. How about eliminating the ineffective, inefficient provincial governments, saving billions?
The politics around resolving Eskom’s R450 billion debt are complex. It is worth noting that communities renowned for non-payment of billions chose this budget week to demonstrate against power blackouts, etc. How will Mboweni and the ANC balance votes and volts?
On SAA, government’s legally questionable attempts to interfere with business rescue reflect an inability to let go of what they cannot control.
Partial loss of control is something ministers will have to accept when the IMF moves in. Twitter chef Tito can apparently work wonders with a tin of pilchards. However, while defective pilchards can be recalled, a poisoned economy cannot be made to disappear.
Can Mboweni serve up something that will make us feel better?
Martin Williams, DA councillor and former editor of The Citizen.
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