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FOR the first time in many years, it is almost unanimously expected that taxes will be raised by Finance Minister Nhlanhla Nene in next Wednesday’s National Budget.
READ: New super-rate of personal tax possible - Nomura
That has been a long time coming, with economic growth slowly faltering over the last five years and fiscal manoeuvrability now very limited. The government must either boost its income (taxes), cut expenditure (difficult with all the growing needs), or stray from its set three-year path to bring down the budget deficit and the need to borrow more (a dangerous route with debt traps and big problems looming later on). The government already borrows around R160bn per year.
What is surprising though is the sort of philosophical resignation with which ordinary South Africans and experts alike are apparently awaiting a tough budget, with higher taxes probably over a wide spectrum. Listening to economists one gets the impression that they actually think increasing the burden on taxpayers will be positive because it will show Nene and the government’s commitment to move towards a more balanced budget without sacrificing “developmental” goals.
This is a sort of attitude that just wants the overall budget figures to stay sound and within acceptable parameters, never mind wasteful spending, the effect of higher taxes on investment and growth, etc.
Maybe South Africans have been mesmerised or desensitised lately by the president’s inability to lead constructively, a parliament where orderly proceedings are under threat and the mind-boggling losses and capital needs at state enterprises like Eskom and (recently again) South African Airways.
Or maybe commentators are just tired of the usual “balancing trick” that budget watchers have become used to since the introduction of the medium-term budget planning process about 15 years ago. Perhaps they are longing and looking for the anticipation and excitement of the “big announcement” and some major course-changing moves.
Nene has over the past ten years (first as chairperson of Parliament's portfolio committee on finance and then as deputy finance minister under first Trevor Manuel and then Pravin Gordhan) been trained in the set mould of the National Treasury tradition of sober and sound budgets. In his first mini-budget in October, he showed his appreciation and understanding of economic realities.
READ: Mini budget worth a cheer
But what is clearly needed now is not only the perfect balancing act of a bean counter, but some bold moves and leadership as far as economic policy and the goals of the national development plan are concerned.
Low growth and employment figures are a worry that has almost become too boring and meaningless to mention. But the fact is that SA has been lagging a lot of its peer emerging market countries and even many other African countries as far as economic growth is concerned.
No mumbo jumbo please
Nene should clearly indicate what can and will be done, without resorting to government and ANC mumbo jumbo, or even worse the ideological talk of some ANC politicians. Greater accountability and discipline in the stewardship of public resources should be shown.
The public sector wage bill should be reviewed to scale down a bloated senior administration in favour of middle to lower level public servants. This is to keep state institutions properly run, maintained, inspected, clean and safe. The downward spiral observable in service delivery must be stopped.
Then, naturally leadership is needed regarding a positive business and saving environment, restoring local business confidence, enticing companies to invest and indicating structural reforms along the lines identified by the NDP. It's a tough ask from Nene. He is after all just the finance minister (and a fairly new one at that).
Perhaps he should just heed what the senior and well-respected Sanlam economist Jac Laubscher wrote just more than a year ago: “The risk is that the government could resort to counterproductive action in an attempt to improve the growth rate, for example extending the role of government enterprises or interfering in the allocation of capital.” (One could add other means of production, like land.)
Business just looks at profit
He states that while it may have a positive impact on the business climate, businesses do not decide whether or not to expand their operations based on agreements with government and labour, development conferences and/or state growth plans. The acceptance of the profit motive as the most powerful incentive for private economic activity holds the key.
“It will be much better for the state to align its developmental objectives with the private sector’s natural pursuit of higher profits than to expect businesses to put the profit motive aside for the sake of social objectives,” Laubscher wrote.
It will have to be seen if it is possible for someone in the Zuma government to not only show his colours but also his ability to decisively lead in this regard. Eskom and its financing (privatisation?) should be a good starting point.
