Business Unity SA (Busa) has called for “deep and substantial” cuts in government spending in the medium-term budget policy statement to be delivered by finance minister Enoch Godongwana in parliament on Wednesday as one of the measures to address the shortfall in government revenue.
With low economic growth failing to generate the required tax revenue, economists are forecasting a revenue shortfall of about R30bn.
Busa CEO Cas Coovadia said in a statement Godongwana should outline clear measures to ensure available funds are spent efficiently and to curtail expenditure, “which has to include deep and substantial cuts in spending on non-essential and nonproductive programmes, the shelving of unfunded prestige projects and linking future public sector wage increases to inflation”.
“These measures must have the support of the rest of the cabinet, which must speak with one voice to boost public confidence in the government’s commitment to responsible management of the economy.”
Coovadia noted a warning by Godongwana that SA will run out of money by March 2024 unless it reduces its spending.
He referred to the Reserve Bank’s forecast of just 1% growth in GDP for 2024 that he said is insufficient to generate the revenue needed for the country’s social and economic expenditure.
“SA has a growing tax revenue shortfall, in part because of weak household finances, low business confidence, low investment, lower global commodity prices, and a weak rand.”
Servicing debt
Busa has acknowledged the government needs to raise more debt, which it sees as a stopgap measure to fund capital investment in growth-enhancing economic infrastructure, but cautioned this must be kept to a minimum and be complemented by economic reforms that will encourage and facilitate private sector investment.
Increasing expenditure and decreasing revenues raise questions about the government’s ability to service its debt, Coovadia said. By June, SA’s debt-to-GDP ratio was 72.7%, up from 70.9% in the previous quarter. The cost of servicing the debt is now the single largest expenditure item in the budget.
While the medium-term budget doesn’t include announcements on tax changes — such announcements are left to the main budget in February — Coovadia said SA can’t afford further tax increases, noting that SA’s tax-to-GDP ratio is already among the world’s highest.
“Increasing any taxes will burden households and hobble economic growth further. The most effective way to generate fiscal resources is to support economic growth,” Coovadia said.
SA, he said, “needs leadership with the political will to provide a clear policy environment, a commitment to removing barriers to investment, and to building business, investor, and consumer confidence”.
The deteriorating state of public finances threatens the delivery of public services and puts SA’s economic recovery at risk, said Coovadia.
Eskom support
Labour federation Cosatu condemned what it said are Treasury’s “misguided austerity budget cuts across government in the run-up to the medium-term budget, including freezing vacancies and infrastructure investment programmes”.
Cosatu acting national spokesperson Matthew Parks said the priority is to unlock economic growth by among other things providing additional support to Eskom to end load-shedding; urgently intervening at Transnet; stabilising dysfunctional municipalities; and allocating additional resources to the SA Revenue Service.
The social relief of distress (SRD) grant should also be raised to the food poverty line of R624, it added.
A group of more than 100 economists, civil society organisations and labour unions said any further cuts to government spending will hurt the poor, widen the inequality gap, and do little to alleviate SA’s unemployment crisis.
“Contrary to the current narrative, there are alternatives and these should be taken up by the minister of finance before resorting to ill-considered, detrimental budget cuts,” they said.
The group proposed closing the budget deficit by drawing on the R459bn owed to the government in the SA Reserve Bank’s gold and foreign exchange contingency account and increasing short-term, less expensive borrowing.
Treasury could raise additional revenue by increasing corporate income tax from 27% to 28%, removing tax breaks for high-income earners and scrapping corporate tax subsidies such as the employment tax incentive.
With additional reporting by Tamar Kahn
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.