Beware EWC in a time of fiscal crisis - IRR
23 February 2021
As South Africa nervously awaits tomorrow’s Budget Speech, the Institute of Race Relations warns that any hope of the country’s extricating itself from its fiscal malaise will depend largely on its policy choices.
With last year’s consolidated fiscal deficit at some 15.7% of GDP – the largest on record – even a recovery to the projected 9.2% would still place South Africa in a position that mirrors its circumstances throughout the Second World War or the crisis-hit early 1990s.
The tax take meanwhile creeps ever upward. National revenue in 2019/2020, just before the pandemic, was estimated at under 30% of GDP. This is a record high – and continues a long-term trend. Continuously taking money from households and businesses contributes to their exit from South Africa and undercuts the prospects for investment.
South Africa desperately needs growth. The country cannot divorce, or afford to try to separate, any possible fiscal recovery from the policy environment that will either promote or hinder the investment that is necessary to drive it.
The Budget Speech coincides with the drive by the ruling party and the government to enact a policy of expropriation without compensation. The mere pursuit of the policy over the past three years has taken a toll on the economy. GDP growth in 2018 and 2019 was 0.8% and 0.2% respectively – this being before the pandemic struck.
The Expropriation Bill and the amendment of Section 25 of the Constitution places an enormous amount of discretionary power in the hands of a state that has all too often shown itself corrupt and dysfunctional.
Little dissuades investors more than a threat to the security of their assets. To push ahead with the EWC agenda at the best of times would be a damaging and reckless course. To do so under the current circumstances places the future of the country in jeopardy.
Issued by Hermann Pretorius, IRR Head of Strategic Initiatives, 23 February 2021