This week will see Finance Minister Enoch Godongwana announce major steps on how government will impose austerity measures to address the looming financial crisis.
Godongwana is expected to table the Medium-Term Budget Policy Statement (MTBPS) in Parliament on Wednesday, November 1, at 2pm.
Thys van Zyl, CEO of Everest Wealth said that Godongwana must be honest about the country's financial issues.
“The reality is that there is not enough money, there are too many expenses and that the government is going to have to cut back,” Van Zyl said.
“Bailouts for state-owned enterprises must be stopped and the number of government departments and enterprises must be drastically reduced to bring down the public service's sky-high salary bill,” he said.
“Privatisation and partnerships with the private sector must receive urgent attention so that proper intervention can be made where the government fails.”
TAX REVENUE
Van Zyl argues that there are indications that tax revenues will not meet the government's targets this year.
“Just over 2.5 million people pay 84% of all personal income tax and it is clear that there are not enough taxpayers to make up the deficit.
“Many taxpayers are also in effect double taxed and also have to watch every month how a large part of their hard-earned money is taken by the government and in return they get no or poor services, while there are almost daily reports of how tax money is stolen or wasted,” he added.
Old Mutual Wealth Investment strategist, Izak Odendaal said that there is little room to raise tax rates – and taxes are normally not adjusted in the MTBPS – the hard work will have to happen on the spending side.
Odendaal said that government will have to be more efficient, doing more with less.
MORE BORROWING
Van Zyl criticised government’s continued borrowing as national debt continues to rise.
“At this stage, money is only being borrowed to try to curb the energy crisis while infrastructure is collapsing,” he said.
Last week, the World Bank said that its board had approved a $1 billion loan for SA in order to address the energy crisis.
The loan will help state utility Eskom address its shortfalls and help the company transition to a low-carbon economy.
It should also be noted that the money would be used to help upgrade power and logistics infrastructure within SA.
"If the government is serious about achieving any potential economic recovery, urgent action must be taken. The government must get reforms in place to remove the country's logistical constraints so that the economy can grow," said Van Zyl.
WE ARE NOT INVESTABLE
He argues that SA is looking less attractive as an investment destination due to corruption being exposed.
"Corruption and misappropriation of public funds make investors reluctant to invest in South Africa. Diplomatic missteps by the government and political instability are spooking investors amid sluggish economic growth, largely due to load shedding and the country's deteriorating transport network."
MTBPS IS EXTREMELY VITAL
Odendaal noted last week that a poorly received MTBPS will put pressure on bond yields and the rand, and increase the odds of a rate hike that otherwise seems unlikely.
He argues that, “Treasury is likely to continue to tread carefully in balancing the need for longer-term fiscal sustainability with the need to maintain an adequate level of spending to support public services. Given next year’s election, any changes are likely to be phased in over time, rather than being front-loaded.”
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