In defence of Treasury’s plan to grow the economy, Finance Minister Tito Mboweni warned the African National Congress National Executive Committee (NEC) that government’s choices are becoming starker, and that urgent changes are needed.
In Mboweni’s presentation, during the third day of the NEC’s conference in Boksburg, he said growth is faltering and tax revenue has disappointed despite tax hikes, including the VAT increase.
In a weak economy, Mboweni said, businesses are struggling to cope with the higher tax burden and South Africa’s lack of competitiveness. He said the outlook for growth has worsened significantly since the February Budget, and that growth is likely to remain below 2% “for at least the next two years”.
Weak economic growth
“Slow progress to date on structural reforms means growth will remain low,” Mboweni said in his presentation at the NEC, which has been leaked to Fin24.
Mboweni said that state-owned enterprises (SOEs), e-tolls, the National Health Insurance and the Road Accident Fund are all placing demands on government finances.
He warned that SOEs posed a “massive risk to economic stability and fiscal sustainability”, with Eskom’s total debt now the equivalent to 9% of GDP – the same size as the mining and agriculture sectors combined.
In a low growth environment, fiscal choices are become starker, Mboweni warned. A reliance on tax increases, and more government spending (particularly on civil servant wages), will hit growth.
“If no corrections occur, in a slow growth environment, we face even greater adjustments in three years’ time.”
Mboweni also said that there is a lack of accountability for ministers, and that their performance agreements are based on outcomes that are “poorly conceived”, with “no actions taken against officials or ministers”. In his presentation, he also cast doubt about government’s cluster system.
Mboweni defended Treasury’s policy discussion document on growth, released last month, which proposes increased support for exports, agriculture and tourism among many other initiatives. The ANC’s alliance partners, including Cosatu, have attacked the plan.
But in his presentation on Sunday, he reiterated many of the more controversial aspects of the plan, including:
Selling state-owned companies
Mboweni said that government should “stop subsidising inefficient SOCs [state-owned companies] to deliver services more effectively done by someone else and sell SOCs that have no clear public service mandate”.
Previously, Mboweni mooted the sale of SAA, as well as Eskom’s coal-fired power stations.
He blasted wasteful SOE expenditure, including large overruns on infrastructure projects and very high wages for senior officials.
Mboweni said SA’s SOEs have unsustainable revenue models, with “high prices reducing demand and a culture of non-payment becoming entrenched”, and as well as unsustainable cost bases (“wasteful expenditure; large overruns on infrastructure; very high wages for senior officials”) and insufficient accountability (“government not enforcing shareholder discipline; board of governors not appropriate”).
Mboweni said that major SOEs are abusing their monopoly position, but there isn’t yet resolution whether more competition or better regulation would help solve it.
Curbing collective bargaining
Collective bargaining agreements are favouring big business and big labour to the detriment of the unemployed and small business, Mboweni said. Treasury wants small businesses to be exempted from industry wage agreements.
Mboweni also warned that the national minimum wage is increasing the cost of doing business in SA.
“Global competition for low-skilled work is intensifying and SA’s unskilled labour is expensive.”
The bottom end of the labour market is being helped with the minimum wage, while highly skilled workers are getting paid well because of a lack of skills.
“However, workers in medium-skilled jobs, the informal sector, [and] technology-sensitive jobs have seen [a] decline in the growth of their real earnings.”
Promote high-skilled immigration
Mboweni said that high-skilled immigration should be promoted through an “improved immigration framework”.
He also suggested the creation of a new National Bureau of Economic Research to improve the quality of policy advice, and confirmed plans for a Sovereign Wealth Fund.