The truth about the 2018 Budget
While newspapers will herald the budget as ‘good’ and ‘brave’ and ‘striking a balance’ between competing objectives at a difficult time, it is none of these things.
Most concerning is the government’s medium-term expectation that South Africa’s economic growth rate will continue to underperform emerging market averages by more than 50%. Treasury projections are so low that South Africa is even expected to underperform most developed market growth rates.
A second concern is that government expenditure has reached a record high of over 30% of GDP – a figure higher than when the desperate apartheid government tried to spend its way out of trouble. The inference is that the government believes it can spend more effectively than the private sector and households.
Tax increases and fiscal drag measures mean that the burden placed on individual households is going to do real damage to the economy. South Africa has long reached a point of diminishing returns where tax increases have a severely counter-productive effect on living standards and economic performance.
It is nonsense, as some economists have suggested, that zero-rating and the like protects poor people from the effect of VAT increases. As households get squeezed, the poor lose out through depressed economic activity and limited opportunities for employment or advancement.
All the above is the price that this organisation has long predicted the poor and the middle classes will ultimately pay for the misguided ideologies and counter-productive policies of the past decade.
We reiterate what is required to stage a reformation:
- The government must deregulate the labour market to price poor people into jobs
- Empowerment policy must be recast to address actual socio-economic disadvantage
- The bulk of parastatals must be sold
- Property rights must be completely secure
Short of all the above, Mr Ramaphosa will fail to translate his political success into an economic reformation.
This note accompanies the latest Fast Facts report, ‘Old Mother Hubbard’ – an assessment of the 2018 Budget – from the Centre for Risk Analysis at the IRR.