Mboweni raises the white flag on debt stabilisation

Growth

Finance Minister Tito Mboweni is right to identify economic growth as the only antidote to South Africa’s financial crisis. Growth brings more revenue to pay for more basic services, and growth helps bring down debt over time.

He confounded expectations of further tax increases and in fact gave some small income tax relief. This is welcome news, especially for working families who have been struggling to make ends meet with successive tax increases in recent years. More money in citizens’ pockets means that they can spend more, or save more, and both of these are good for growth.

He also indicated an intention to reduce corporate tax rates over time. This too is a positive, pro-growth announcement.

Debt

However, the Minister’s primary job remains to rein in our ballooning national debt. He did not do this.

In fact, Treasury admitted defeat, conceding that government will not meet its deficit target, and debt will not stabilise over the medium term. Indeed, far from stabilise, debt will grow to 71.6% of GDP, or R4.4 trillion, by the end of 2022. Minister Mboweni has often committed himself to stabilising debt. Now he has raised the white flag of surrender.

This means we will spend R229 billion this year alone on paying interest on our national debt. That is the same as we will spend on healthcare (R229 billion), more than we will spend on social grants for the poor and elderly (R221 billion) and more than double what we will spend on policing (R106 billion). This shows that unless we get debt under control, we will continue to spend more on interest, and have less and less for basic services.

This ever-mounting debt underscores the need for the DA’s proposed Fiscal Responsibility Bill, which which would introduce a new legislative fiscal rule to stabilise debt, by preventing the government borrowing more each year without the permission of Parliament. We will be tabling this Bill in Parliament and call on all parties to support it.

The deep cuts to public services now being proposed are a direct result of too much debt. Debt must come down, so that social spending can go up.

Wages

The Minister did announce a R160.1 billion cut to the public wage bill. This is welcome movement in the right direction. But his tough talk lacks credibility, because the government has only just begun negotiations with unions. So while the Minister has already budgeted for the full cut, there is no guarantee whatsoever that this cut will actually materialise.

Even with this cut pencilled in, debt is still growing. That means that if the full wage reduction is not achieved, debt will be even worse than now projected.

Bailouts

The Minister talks tough on zombie SOEs. But far from ending support for zombie SOEs, he announced another huge R16 billion bailout for SAA. This too is a white flag of surrender. Treasury has still not imposed any conditions on Eskom for the bailouts they continue to receive.

While the basic services on which the public rely are being cut, more money is being spent on failing SOEs. This is an indefensible choice.

DA proposals

The DA has also proposed an Emergency Solar Rebate to incentivise households to install solar power, easing the load shedding crisis and helping businesses stay open. We are disappointed an incentive scheme like this was not included in the Budget.

In summary, the longer that we allow debt to spiral out of control, the more cuts we will have to endure in future years. It would be wiser and more prudent to take the tough action necessary to stabilise debt now. Unfortunately Minister Mboweni did not do this, instead raising the white flag of surrender.