Ahead of the Medium-Term Budget Policy Statement (MTBPS) being presented on November 1, Business Unity South Africa (Busa) says National Treasury has to curtail unnecessary expenditure more than ever.
“The Minister needs to 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 non-productive 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,” CEO Cas Coovadia emphasises.
Finance Minister Enoch Godongwana, who will deliver the MTBPS, has warned that South Africa will “run out of money” by March 2024 unless it reduces spending.
Busa explains that South Africa has increasing expenditure and decreasing revenues, which places the sustainability of its capacity to service its debt in question.
As of June, South Africa’s debt to gross domestic product (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.
Simultaneously, the South African Reserve Bank has forecast a mere 1% growth in GDP in 2024, which is insufficient to generate the revenue needed for the social and economic expenditure of the country.
South Africa also has a growing tax revenue shortfall, in part owing to weak household finances, low business confidence, low investment, lower global commodity prices and a weak rand.
Busa acknowledges that the Minister has no choice but to raise more debt as a stop-gap measure to fund capital investment in growth-enhancing economic infrastructure; however, the organisation says the increase in debt must be kept to a minimum and be complemented by vital economic reforms – including to facilitate more private sector investment.
With the tax-to-GDP ratio already being among the highest in the world, Busa says increasing taxes will burden households and hobble economic growth further.
Instead of increasing taxes, government should look to support economic growth, it advises.
South African businesses are already working with government to resolve the energy and logistics crises, as well as crime and corruption, therefore businesses’ commitment to the country is clear, Busa states, adding that more political will is necessary to provide a clear policy environment and fewer barriers to investment.
Coovadia concludes that economic growth is a national imperative if South Africa is to avoid a fiscal crisis, create jobs, deepen the tax base and provide sustainable support to its most vulnerable.