by
Hon L de Klerk MPL
KZN Legislature
Honourable Speaker
Thomas Sowell said:
“The real goal should be reduced government spending, rather than balanced budgets achieved by ever rising tax rates to cover ever rising spending.”
During last year’s midterm budget performance review debates, I asked the governing party to “wake up” as most of the provincial departments and state-owned entities were battling to balance their budgets meaning spending the straight-line benchmark of 50 percent after 6 months. This year the Departments of Education, Health and Transport already exceeded their mid-year projections and also projected to overspend at the year end. This is once again a clear indication of poor planning. We know through experience that the departments that has a projected over expenditure will actually overspend. To hope that these departments will contain their spending pressures to zero is wishful thinking so the fiscus will at risk. The contingency reserve that remains is not sufficient to protect the provincial fiscus if these departments overspend their budgets.
Considering the economic reality in South Africa with a below 1% growth rate and the fact that two rating agencies has downgraded us to junk status and the ever-increased need for social government projects a very difficult time lies ahead.
Not long ago the ANC touted Brazil, and Venezuela as shining examples of how effective a socialist government can be. They debated these examples in this August house and went to Venezuela on a study tour. Even this year SCOPA tried to go to Brazil to learn from them.
It is shocking to look at these two countries and see that their economy is in shambles. The Managing director of Emerging Markets and Africa at Deloitte Martyn Davies has warned that even rockier waters may lie ahead as South Africa is bearing increasingly striking similarities (in a bad way) – to fellow Brics member Brazil. The analyst further stated though even though Brazil was already well travelled on the path of economic decline, South Africa is starting to show striking similarities in its own economic decline.
South Africa has just managed to scrape itself out of recession in the second quarter of 2017 and is only expected growth of 0.3%, but in real terms, the country’s population growth outpaces this by some margin, meaning SA is getting poorer.
I agree with the ANC, we should look at what happened with Brazil. In 2002 Lula Da Silva became Brazil’s president, he was a socialist. He implemented a programme of redistribution of wealth without implementing proper policies to grow the economy. The only people that got rich was Mr Da Silva and his crony comrade friends. It even got worse when Dilma Rouseff was elected as president. The socialist increased government spending, deficits and debts and called it a stimulus, they increased minimum wages and called it social justice, they increased the salaries and pension benefits in the civil service and called it investing in the future, they handed out thousands of jobs in the civil service and state-owned entities as favours for their political allies and called it good governance. Government spending just kept on going up with the result that from 2008 to 2015 government spending was as fast as the tax revenue. The economy shrank resulting in the destruction of the economy. Brazil also have one of the world’s highest murder and robbery rates. Everyone knows that Venezuela Socialist policies has destroyed its economy to the point that the oil rich country is a basket case and in continuous turmoil.
Brazil’s president Rouseff has been impeached and Mr President Da Silva is being charged with corruption.
South Africa and Brazil both ranks poorly on global corruption perceptions indices, both have allegations and investigations around their presidents and abusing state companies and resources. Both are on a declining rating path, both are vulnerable with their current account deficits, and both face waning confidence from foreign investors – the list goes on.
South Africa is clearly following in Brazil’s economic footsteps, albeit with an approximate two-year time lag. Looking ahead with pressures on South African credit rating include very weak GDP growth, public sector under performance, twin deficits showing a shortfall both in the fiscus and the current account; waning investor confidence, the continued structural challenge of high unemployment, inequality and poverty.
Unless the state can reform itself, provide greater confidence for private capital and create a greater enabling environment for business further decline can be expected.
Unless the SA political environment is “fixed” and an essential improvement in governance occurs, the country will accelerate in following in Brazils footsteps in a downward spiral of economic contraction and multiple sovereign debt downgrades.
Due to the pervasive and damaging control of SOE- determined most often by ideology rather than pragmatic policy both Brazil and RSA suffer from an overbearing state.
A crisis in government has led to an economic crisis.
Until the politics is fixed there is little vision for the economy.
I thank you
