Lisette IJssel de Schepper, chief economist of the Bureau for Economic Research, says last week's reviewed budget was one of lost opportunities, failing to convey any sense of urgency about what needs to happen to boost economic growth.
“The need to accelerate growth should have been front and centre of the budget. If you as government think the only way to get there is increase VAT because we're going to do XYZ with that tax money to get growth going then that's fine, but that's not what they presented in the budget. They didn't tell us how the expenditure is going to add to growth,” she said.
The big questions left unanswered are where spending can be cut and how the country's debt can be cut back quicker.
“There is an urgent need to look at wasteful expenditure, at all the things they have been promising. These promises need to be implemented, but this budget just kept kicking the can down the road. And we're running out of road for the can to be kicked.”
A half a percentage point VAT increase won't move the needle at all, she says. It just increases the tax burden on consumers and comes with an added administrative burden.
“This is fiscal consolidation through tax rather than spending cuts, which is not the way you'd want to do fiscal consolidation.”
One of many disturbing features of the budget was that there were so few spending cuts and so much additional expenditure. “We can't continue doing this. A VAT hike is a last resort, a sign that they have run out of road now.”
There is no indication from this budget that the government is ready to make the changes the country so desperately needs, and that, she says, “is truly worrying”.
“We needed to see a budget that is good for growth, that communicates a pro-growth message. This budget didn't do that. There was nothing in the budget that signalled that the Treasury or the GNU are really serious about growth. And this is a message business and investors need to hear loud and clear.”
For a little while it seemed as though there was a real urgency from government, a recognition that it's a national imperative to fix things that impede growth.
“Business bought into that, and that's why we saw business sentiment recovering in the second half of last year. Now, it's as if that sense of urgency has left the room.”
Celebrating a 0.6% growth rate as though it's an achievement rather than a massive failure, is “worrying”.
On the logistics side it's two steps forward, one step back. The initial signs were very positive. The private sector was going to be brought in. But looking at the ports there's no progress on the concession side
— Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research
“You want to be real about that: 0.6% is not real growth, it is nothing to celebrate. We're at a stage now where we need to see real action and real traction.”
Investors understand structural reforms will take time, but they want to see a plan of how implementation is going to be speeded up, and they want a sign of commitment.
“We didn't see that in this budget.
“On the logistics side it's two steps forward, one step back. The initial signs were very positive. The private sector was going to be brought in. But looking at the ports there's no progress on the concession side.”
Another Treasury bailout for Transnet would have been “throwing good money after bad”. But a commitment to faster concessioning, which wouldn't require anything from a spending perspective, would have sent a strong signal to impatient investors. It was never dealt with in the budget, which was “another missed opportunity to say how the reform process which seems to be stuck, will be accelerated”.
Consumer confidence, which was ticking up last year because of expectations about the GNU, will have also taken a knock, as she expects the BER consumer confidence index to reflect when it's released next week.
“The messy, uncertain way the budget played out, and of course the VAT hike, will have done nothing to improve it.”
All the talk is about investment-led growth, but the consumer could have given “a great kick-start to growth in 2025”. Instead, in addition to the VAT hike the failure to adjust the tax bracket for inflation is a kick in the teeth for consumers, she says.
“Treasury's own research shows that we're at a point where increasing taxes is not necessarily going to increase tax revenue. Despite that research they decided to go this route.”
It was the only option given the additional expenditure the government wanted, “but the question is whether we need this expenditure? We need more frontline workers, nurses and teachers, but there are so many places where we can cut back.”
The budget was clear evidence that the spending reviews the Treasury talks about are not actually being looked at, let alone acted on.
“Government's own wage bill is a percentage point above the nominal GDP growth rate. That's akin to the profit the country generated, and you agree to a wage bill above that?”
That's where government could and should have drawn the line, she says. “The one good thing about the budget was that at least they didn't borrow more, because that would have blown us out of the water.”
The BER has reduced its pre-budget 2% growth forecast for the year to 1.5%, and even that is now looking overly ambitious, she says. It would require growth to more than double from what it was in 2024.
The consumer would have been a big driver of growth in 2025, but had been “knocked down”, in part due to the budget and in part due to the “confidence shock” that might be coming, she says. Consumer confidence tracks the willingness of consumers to spend, while taxes affect their ability to spend, she explains.
Due to the impact of the “tricky global environment” further interest rate cuts by the Reserve Bank are unlikely to come to their rescue.
“If the budget had been a wake-up call for government that growth is the only way out of our problem we could still see a more positive story playing out over the medium term.”
But hopes that the revised version of February's ill-fated budget might be a clarion call for growth have been rudely shattered, says IJssel de Schepper.
“There was no sign of this. I think we're still asleep and then we're back to muddling through.”
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