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Budget 2016: Not bold enough to definitively avert a downgrade

BY Mmusi Maimane MP, DA Leader

South Africa is in a precarious, unstable position. We face the very real threat of a credit rating downgrade to junk status. Right now, we need to be doing everything in our power to avert this damaging outcome. More than ever, we need strong, decisive leadership. Last week’s budget went some way to signaling good intent, but it definitely did not go far enough.


South Africa is heading into a perfect storm: multiple crises are brewing simultaneously, overlaid on our already challenging circumstances of high unemployment, inequality and poverty.


Our stagnant economy is not creating jobs at the rate required to stem rising unemployment, a situation which will be aggravated by a downgrade. At the same time, we are in the throes of a severe, widespread regional drought that is triggering food price inflation, food insecurity, and rapid regional immigration and urbanization. And we have a frustrated student body that is expressing its anger in ways that are barring other students from productive study.


Certainly, producing the budget was no easy task. To meet these challenges would have required political free reign of the sort not possible in a party as divided and compromised as the ANC. Because what we really needed was announcements and commitments bold enough to catapult us onto a new growth trajectory.


There is only one way that an economy grows, and that is when people invest in it. Investment requires confidence in the system, confidence that is lacking right now and needs to be urgently restored. It is this same confidence that would avert a downgrade to junk status.


Minister Gordhan should have committed unequivocally to privatizing all failing state-owned enterprises. This would have been the clearest signal to investors and ratings agencies alike that the commitment to spend no more than you earn, has won out over pervasive patronage.


Privatising state-owned enterprises would simultaneously grow revenue, cut the cost of constant bailouts, and vastly reduce the avenues for patronage and corruption. Instead, he somewhat ambiguously committed to a minority equity partner for SAA, specifically emphasizing that this was not privatization.


Mr Gordhan should also have committed to selling off other non-essential state-owned assets, like land and buildings. This would go some way to reducing our debt, which has grown to almost 50% of GDP. It costs us nearly R150 billion per year to service this debt, which amounts to around R400 million per day. And the budget projects that our debt is set to rise to around R180 billion in the next couple of years. This does not inspire confidence.


This debt is largely a result of our bloated public sector, which consumes some forty percent of our budget, and which has ballooned in recent years. To his credit, Gordhan committed to freezing all vacant administrative posts and to reducing the public sector over time, by natural attrition. But this is likely a case of “too little too late”.


To unquestionably avert a downgrade and to avoid a debt spiral, Mr Gordhan should have brought spending in line with revenue. The only way to achieve this would be to dramatically cut waste and corruption. Instead, the budget predicts a shortfall of R139 billion.


And if the government was serious about attracting investment and stimulating growth, the budget should have announced a significant reallocation of resources from the over-sized public sector, to infrastructure. Our economic growth is being constrained by our quietly crumbling water, energy, transport and communications systems, which are critical for growth.


The Democratic Alliance has committed to spend 10% of our GDP on infrastructure maintenance and development. This is what our economy requires in order to grow at a level which could start reducing unemployment. Currently the proportion of GDP allocated to infrastructure was just 6.4%, and this is set to decline further over the next three years.


The fact is that Gordhan was unable to put a big enough squeeze on the Zuma patronage network. Just reducing our cabinet to a normal size would release over R4 billion, funds which could be far better spent elsewhere.


Mr Gordhan should have announced a comprehensive spending review to identifying savings, eliminate wasteful expenditure and shift resources to where they are desperately needed in our society.


He should have announced significant additional funding for drought relief. If we are to protect our food security, we need to protect our farmers. The immediate relief requirement is estimated to be R 4.2 billion this year. His failure to commit any additional funding will have severe consequences for the availability and prices of food for all South Africans and particularly poor households.


It will also have severe consequences for social stability, as food shortages in the region are bound to trigger rapid immigration from neighbouring countries, as well as rapid urbanization within South Africa.


Social grant increases should have matched food price inflation, reckoned to be 11%, in order to protect our poorest communities, for whom food makes up the bulk of their spending. Instead, grant increases were below inflation, so the poor are set to suffer even more in the coming months.


Similarly, Mr Gordhan should have announced significant additional funding to higher education. State subsidies to universities have been inadequate and consistently falling for many years. This is the root cause of the student protests across the country.


However much we disapprove of the increasingly violent nature of their activities, the fact is that students’ core grievances are legitimate and they are unlikely to relax their onslaught until the issue of funding has been resolved. Our universities face the threat of rapid decline that could well be irreversible, and the problem is not going to go away until state funding shortfalls are resolved.
That Minister Gordhan did not make bolder commitments to cut waste and reprioritise spending was the surest indicator, confirmed by the now public “SARS wars” fiasco, that internal ANC political warring has hit the “pause” button on South Africa’s development. We’re in damage-control mode while the competing factions fight it out.


Our current leadership simply does not have what it takes to put South Africa first. This is why the upcoming local government elections are the most important since 1994.


It’s now up to you to bring the change we need. You have what it takes. You have the vote. But you can’t use it unless you’re registered in the voting district where you intend to vote. This weekend is registration weekend. This Saturday and Sunday, from 8am to 5pm, you’ll be able to register at your local voting station.


Please register and encourage others to do the same. All you need is your ID book and your determination to bring the change South Africa needs.
 
 
Mmusi Maimane

DA Leader 

 March 04, 2016
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