Ahead of the Medium Term Budget Policy Statement (MTBPS), the Banking Association South Africa indicated the new Minister of Finance, Tito Mboweni, would have to find ways to:
We can award the new minister a symbolic two out of three for his maiden MTBPS speech, given the circumstances presented to him. He has a lot of hard work ahead to ensure he lives up to his early promises.
The provision of free sanitary pads in schools and the VAT zero-rating of sanitary pads, as well as bread and cake flower, will provide some relief to the most vulnerable in South Africa. However, the best way to overcome poverty, unemployment and inequality in South Africa is to create a business environment that encourages sustainable investment and job creation.
Consequently, we welcome the minister’s reassertion of the National Development Plan (NDP) as the government’s long-term vision of sustained, inclusive economic growth. For too long, South Africa’s economic policy has been determined by responses to populist rhetoric and short-term political opportunism.
We also hope the minister can ensure that government “stops talking in contradictory terms”. As he points out: “investors are in it for the long run. They want to know that our policies are clear and consistent.”
There was very little new detail on growth-enhancing economic reforms or their implementation, most likely because of the minister’s concern that it “sometimes it takes too long to do little things”. We hope the urgency he has shown in dealing with the crises in the Vaal River system will be applied to other stimulus initiatives.
We endorse the minister’s strong support for the independence of the South African Reserve Bank and inflation targeting, as well as to strengthening the fiscus.
We would like to see the minister take clearer steps to tackle the public-sector wage bill, the biggest cost pressure on the budget. The 2018 public-sector wage agreement exceeds budgeted baselines by more than R30 billion, over the medium term. It is not good enough to refer this problem to national and provincial departments to manage within their compensation budgets.
The public-sector wage bill and finding funding for productive investment becomes more concerning given the low revenue projections – an expected shortfall of R27,4 billion for the full year, with further shortfalls projected through to 2021. The anaemic economic growth projected for the same period makes this especially worrying.
The minister was also relatively silent on the other threat to the health of the fiscus: state-owned enterprises. We are obviously concerned about the intention to provide further funding to South African Airways and SA Express, without a clear set of conditions. The minister made little mention of the other state-owned enterprises whose contingent liabilities continue to threaten the country’s sovereign credit rating.
We hope that his talk of breaking down the walls between the public and private sector and making sure there are no “holy cows” in discussions about the reform of state-owned enterprises is an indication that more decisive action is on the way.
The initiatives to strengthen financial and project management in government may help reduce the gap between revenue and expenditure and must be pursued urgently. The private sector has often volunteered to assist government with skills and experience.
We agree with the minister that the MTBPS is an opportunity to build trust and confidence between business, government and labour. We are willing to work with him to assist in implementing some of the commitments made in the statement. We hope that there will be much progress to report when he presents his own budget in February next year.