Budget 2016 won’t save South Africa
The 2016 Budget Speech was as expected – making small concessions to fix the economy, yet not doing enough to solve the pressing issues in our economy. Prior to the budget speech, Pravin Gordhan asked four questions about the state of the country. I answered them in an earlier article, accusing the state of misconduct, and calling for deregulation and spending that aids the rule of law.
It is time to see if the budget speech addresses or solves my concerns:
a) What are the three things that government does very well?
“Corruption, cronyism and avoiding prosecution… The only department that seems to do relatively well is the South African Revenue Service, which uses its efficiency to fund a bloated and inefficient administration.”
Not much was said about corruption and cronyism. It was acknowledged that SARS is adept at its job, but this means little when the cash it gains disappears into inefficient state functions.
Calls for a new tender process were made, with Gordhan stating that the new process would make it more transparent. This will hopefully be the case, as tender fraud makes up much of our corruption and failing state functions.
Gordhan rightfully pointed towards global factors as a big cause of the economic downturn, but seems to have underplayed the rampant mismanagement of the country as contributing to our failing state.
b) What are the three things that government should stop doing?
“Over-regulation, ideological pandering and over-spending.”
Besides stating that the costs of starting up and doing business will be reduced, little was said about ending over-regulation. Instead, a call for tax hikes on cigarettes and alcohol was made, alongside a new sugar tax, a raised fuel levy and an increase in capital gains tax. While the fiscal short-fall is concerning, the state should be aiming at reducing spending, not adding to the brunt on consumers.
Businesses, the main source of economic growth and tax revenue, need a safe and free environment to prosper. The refusal to deregulate, and the increasing prices of goods, will put pressure on businesses, delaying expansion and halting new business ventures.
Gordhan has stated that he is committed to spending cuts, citing a reduction in travel costs, vehicles for politicians and a procurement reform promising to save R25 billion per year. While this is a step in the right direction, it is not enough.
We have a bloated cabinet that needs shrinking, a public sector larger than some first world nations, and state functions that could easily be privatised. Moves to merge SAA and SA Express are not enough. Both should be privatised and forced to compete. This will save the public money and allow a weak business to fall or rise through market functions.
The recently greenlit Expropriation Bill doesn’t help at all, as ideological pandering will cause increased distrust in the economy, causing capital flight and terrified business.
Overall, not enough cuts and a lack of deregulation put a damper on the promises of easing business and a new procurement process.
c) What are the three areas that government spending should be directed to?
“Law-enforcement/military, the justice system and infrastructure.”
Law enforcement, the military and the justice system got barely a whisper in the budget speech. Promises were made to improve road infrastructure, but this is not enough while citizens are still prone to be hijacked on said roads.
While businesses live under the oppressive brunt of over-regulation, citizens live under the oppression of criminals who dominate some aspect of all our lives. Our law enforcement is underfunded, under skilled and mismanaged. Unfortunately, the government does not seem to think so, as funds are being redirected elsewhere, instead of one of the few legitimate aspects of government – defending its citizens.
All other promises the state makes is nought if we cannot live our lives peacefully and in relative safety. To do this, we need better police and courts to arbitrate disputes. The Budget Speech basically ignored this, meaning that citizens’ lives and the rule of law will have to take a backseat.
d) How can South Africa achieve inclusive economic growth?
“End Affirmative Action and privatise state owned enterprises (SOEs).”
Hardly any mention was made about the failure that is BEE. This policy has destroyed South Africa at all levels, causing a restricted labour market, a collapse in dignity and a violation of business sovereignty. Ideological appeasement must not be a priority while unemployment is still rife and the economy continues to collapse.
Gordhan expressly stated that there will be no privatisation. This is possibly one of the worst aspects of the speech. Refusal to privatise will result in SOEs continuing to be a drain on taxpayers while failing to achieve their functions. Failed state companies and parastatals need to be let go and forced to compete. Other companies must also be allowed to enter into these state dominated industries in order to allow consumers increased choice, as well as allowing extra entrepreneurial opportunities.
The only way to be truly inclusive is to remove exclusivity policies such as BEE and state-monopolies.
As was expected, the Budget Speech was fundamentally a disappointment. The good aspects are not enough and the bad aspects will continue to strangle the economy. It seems that Gordhan has tried to put ideology aside, but a post-revolutionary party such as the ANC does not accommodate such pragmatism. Rhetoric was used to answer pressing questions, rather than pragmatic policy.
What South Africa needs is an unrestrained free market that can generate funds for government while creating opportunities for South Africans. This budget, and government policies, will not accomplish that.