Note to editors: The following speech was delivered in Parliament today by the DA’s Shadow Minister of Finance, David Maynier MP, during the debate on the Fiscal Framework 2017.
Two weeks ago, the Minister of Finance, Pravin Gordhan, tabled the main budget in this Parliament with both hands tied behind his back and with very little political space, fiscal space and policy space to give hope to the 8.9 million people who do not have jobs, or have given up looking for jobs, and who live without dignity, independence and freedom in South Africa.
2. Main Budget 2017
The minister tabled the fiscal framework, outlining government’s revenue, spending and borrowing projections over the medium term, which envisages economic growth recovering to 2.2%; revenue of R1.66 trillion, or 30.1% of GDP; expenditure of R1.81 trillion, or 32.7% of GDP; and most importantly a budget deficit of R145.8 billion, or -2.6% of GDP, by 2019/20.
2.1 “Fiscal Target”
Whatever the case the central fiscal policy objective of government is to stabilize net loan debt, which is projected to reach R2.67 trillion, or 48.1% of GDP, in 2019/20.
To illustrate the magnitude of net loan debt, consider the fact that a net loan debt of R2.67 trillion is the equivalent of:
• a debt of R47 000 per person in South Africa; or
• a debt of R6.68 billion per Member of Parliament.
Because of the “debt mountain”, debt service costs are now the fastest growing expenditure item on the budget and are projected to reach R197.3 billion in 2019/20.
To illustrate the magnitude of debt service costs, consider that in three years’ time we will spend more on debt service costs than we will spend this year on:
• on Health (R170.8 billion); or
• on Defence, Police and Justice (R190.03 billion); or
• on Higher Education (R68.95 billion); or
• on Social Protection (R164.93 billion).
However, the fact is government has a “slow bleed” and simply cannot seem to stabilize net loan debt.
We were told that in Main Budget 2016 net loan debt was going to stabilize at R2.19 trillion in 2017/18, or at 46.2% of GDP.
Then we were told in Medium Term Budget 2016 that net loan debt was going to stabilize at R2.63 trillion in 2019/20, or at 47.9% of GDP.
And now we are told in Main Budget 2017 that net loan debt is going to stabilize at 48.2% of GDP, in 2020/21.
And that is why we propose that government consider implementing a debt-ceiling in South Africa.
2.2 “Slow Bleed”
The “root cause” of the “slow bleed” is stagnant economic growth, which is projected to average 1.83% between 2017 and 2019, and which is below what is required to stabilize our public finances.
Economic Growth: The economic growth projection is 1.3% for 2017, up from 0.3% in 2016, due to a moderate recovery, though it is insufficient to reduce unemployment.
Revenue: However, the moderate economic recovery is not only insufficient to reduce unemployment, it is also insufficient to generate the required revenue, because to borrow a phrase from former Minister of Finance, Nhlanhla Nene, “without economic growth, revenue will not increase. Without revenue growth, expenditure cannot increase”.
The minister penciled in revenue of R1.41 trillion, or 29.8% of GDP, for 2017/18. However, because of lower-than-expected revenue collection, due to stagnant economic growth, and poor tax administration, the minister was forced to announce tax proposals to raise an additional R28 billion in 2017/18.
What the minister chose to emphasize was the formation of a new “super tax bracket”, for personal income tax payers with a taxable income of more than R1.5 million, to be taxed at a new marginal tax rate of 45%, to raise an additional R4.4 billion in 2017/18.
However, what the minister chose not to emphasize was that:
• an additional R12.1 billion would be raised from all personal income tax payers as a result of limited relief for fiscal drag; and
• that an additional R3.2 billion would be raised from the general fuel levy in 2017/18.
What this means is that whether you are rich, and taxed directly, or whether you are poor, and taxed indirectly, the minister will reach into your pocket and help himself to the R28 billion, required to plug the fiscal hole in 2017/18.
That is why it is a pity that government seems to have abandoned the sale of non-strategic assets to raise revenue.
The former minister began a process of selling non-strategic assets, and made a good start by selling government’s stake in Vodacom, which raised R25.4 billion in revenue in 2015/16.
The fact is that substantial revenue could be raised by disposing of non-strategic assets, including the sale of government’s stake in Telkom, which could raise about R14.7 billion.
And that is why we propose that government considers selling non-strategic assets to raise revenue that could, for example, be “ring fenced” to fund infrastructure expenditure.
Expenditure: The minister pencilled in expenditure of R1.56 trillion, or 33.0% of GDP, for 2017/18.
However, because of lower-than-expected revenue the minister announced that the expenditure ceiling would be lowered by R10.2 billion and expenditure of R16.9 billion would be reallocated in 2017/18.
We welcome the R151 billion that will be spent on social grants and the R77.5 billion that will be spent on higher education.
However, new spending pressures loom in the form of the public sector wage bill, which will consume R550.3 billion in 2017/18, and irregular expenditure has skyrocketed, reaching an all-time high of R46 billion in 2015/16.
The Minister of Mineral Resources, Mose(wabenzi) Zwane, became a powerful symbol of the let-them-eat-cake style wasteful expenditure, when days before the budget was presented, it was revealed that he had purchased a new Mercedes Benz E400, at the cost of R1.35 million, in violation of cost containment measures implemented by National Treasury.
We have to get on top of reducing expenditure, but the minister employs a fragmented arsenal of “fiscal tools” to contain spending, including an expenditure ceiling, cost containment measures, procurement reform, and performance and expenditure reviews.
We need to do things differently and implement a Comprehensive Spending Review that would require National Treasury, working together with national departments, provinces, municipalities and state-owned entities, to review the composition of spending, the efficiency of spending, and future spending priorities with a view to reprioritizing expenditure in the medium term between 2017/18 and 2019/20.
And that is why we propose that government considers implementing a Comprehensive Spending Review which has proved successful in Australia (Comprehensive Spending Review 2010), Canada (Strategic Operating Review 2011) and the United Kingdom (Comprehensive Spending Review 2010).
2.2.4 Borrowing: There has been considerable “fiscal slippage” with the fiscal deficit of R149 billion, or 3.1% of GDP, being pushed up by R1.9 billion; and net loan debt of R2.22 trillion, or 47% of GDP, being pushed up by 17.1 billion, in 2017/18.
However, in the end the “root cause” of the “slow bleed” and the fact that government is unable to achieve the central fiscal objective and stabilize net loan debt is that private sector investment has collapsed in South Africa.
Who would invest:
• when President Jacob Zuma, ditches his own policy of “inclusive economic growth”, set out in the National Development Plan, and inspired by Trevor Manual, in favour of “radical economic transformation”, inspired by the likes of Hugo Chavez;
• when you have an aspirant Deputy-Minister of Finance, Sifiso Buthelezi, who seems to believe that corporate income tax should be increased to punish the private sector for not investing in South Africa; and
• when you have another aspirant Deputy Minister of Finance, Brian Molefe, who is committed to destroying the private sector, or what he calls, the “monstrous beast” in South Africa.
We cannot stop the “madness”. But we can start doing our jobs.
And that is why will propose that parliament establishes an ad hoc multi-party committee to provide scrutiny and oversight of the implementation of the structural reforms necessary to boost economic growth and create jobs in South Africa.
Because a multiparty ad hoc committee holding governments feet to the fire on the implementation of structural reforms to boost economic growth and create jobs will give hope to the “lost generation”, which includes millions of young people, who do not have jobs, or have given up looking for jobs, in South Africa.
When we look back the minister did not apportion blame for government’s failures, but what he did do was apportion the burden for government’s failures, in the form of a R28 billion tax hike in 2017/18.
The fact is that last year the minister reached into your left pockets and helped himself to R18 billion, and this year the minister reached into your right pockets and helped himself to R28 billion.
And that is all because President Jacob Zuma, and his cronies inside, and outside the ruling party, are reaching into your back pockets and are helping themselves to billions of rands.
That is why, unless the corruption and waste stops in this country, it is not going to be long before people say, “we are prepared to pay our fair share, but this far and no further” and we have a “tax revolt” on our hands in South Africa.