The Medium Term Budget Policy Statement – which South Africa’s new Finance Minister, Tito Mboweni, is due to present to Parliament on October 24 – is being seen as a key opportunity for the government of Cyril Ramaphosa to confirm that it had made a clean break with the past.
Steven Nathan, founder and chief executive officer of 10X Investments, said the president’s decision earlier this month to accept Nhlanhla Nene's resignation as finance minister had sent a very strong signal to the market that he was serious about turning the tide on the Zuma years.
“The MTBPS presents a great chance to reinforce that message,” he said.
Nathan believes the focus should be on cost containment rather than trying to grow revenues from already stretched consumers and businesses.
“Government’s 2019 Budget projected 10% revenue growth, which translates into R137 billion more from SA’s taxpayers,” Nathan said. “Given the fact that consumers’ disposable income is falling because of higher transport, healthcare and municipal costs, among other things, consumers simply cannot afford to pay more tax without it materially impacting their well-being.”
He added: “Similarly, business profits are under pressure from negligible economic growth for 10 years (GDP growth of a mere 1.8% pa) and rising labour costs. Squeezing businesses with higher taxes is likely to lead to more job losses and lower economic growth, so is not a sensible outcome.”
That said, Nathan added, government expenditure looks high for the size of our economy and tax base.
“Government salaries are higher than the private sector and government jobs have grown at a faster rate than the private sector. These are all unhealthy signs for economic growth as, in general, government does not create wealth; the private sector creates wealth. Government spends the wealth created by the private sector.”
He said government spend of R1.45 trillion in 2018 exceeded its tax receipts by R150 billion. “This is a very unhealthy (reckless?) deficit and has caused SA’s debt to explode over the last 10 years.”
“Government can reduce its costs by eliminating corruption and negligent expenditure.”
He noted that figures representing the exact cost of corruption differed “as it is hard to measure and many government departments fail to produce reliable financial accounts”. He said a figure of R200 billion could be realistic and would wipe out the entire deficit.
“The only losers would be corrupt and incompetent people, which would be a small price to pay and would benefit 55 million South Africans.”
When President Ramaphosa announced that he was replacing Nene as finance minister, Nathan welcomed the move as evidence that the new government was serious about dealing with corruption and even the perception of corruption and dishonesty.
Nene had offered his resignation after information surfaced about him attending meetings with the controversial Gupta family, which he had previously denied. The popular minister had offered to fall on his sword, saying there was a risk that the developments around his testimony at the State Capture Commission would detract from “the important task of serving the people of South Africa”.
President Ramaphosa quickly announced that he was accepting Nene's letter of resignation "in the interests of good governance". Nathan, who was a leading analyst before he founded 10X, said at the time that the announcement was evidence of "a dramatic departure from the previous Zuma-led government, where even when there was ample evidence of corruption or inappropriate behaviour nothing seemed to happen".
"The message is clear that the lack of integrity, the lack of accountability and the complete disregard for honesty and ethical behaviour that dominated South Africa for so long is not going to be tolerated," he said.
All eyes will be on Parliament on Wednesday as Mboweni presents his first policy statement as Finance Minister.
