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Friday, December 3, 2021

Democratic Alliance welcomes Godongwana’s ‘tough love’ for state-owned enterprises

The official opposition, the Democratic Alliance, has welcomed Finance Minister Enoch Godongwana’s tough stance on state-owned entities and his commitment to using the unexpected revenue windfall from higher commodity prices to address the country’s budget deficit.

During his medium-term budget speech on Thursday, Godongwana took a “tough love” stance on parastatals, many of which, he noted, “have been badly managed and have failed to deliver”. Since 2013, the minister noted, the government has directed more than R290-billion to bail out state-owned entities.

“Going forward, the restructuring of state-owned companies, informed by an assessment of their strategic relevance, is a priority,” Godongwana said, adding that no additional funding was provided for parastatals.

“We must be prepared to consolidate some of our state-owned entities and let go of those that are no longer considered strategically relevant.”

Going off script on Thursday, Godongwana said this stance on state-owned entities constitutes a “tough love” approach. “These institutions, we’ve got to love them, support them, but not be laissez faire. At some point we have to draw a line.”

Earlier in his speech, the minister emphasised the government’s “unflinching commitment to fiscal sustainability, enabling long-term growth by narrowing the budget deficit and stabilising debt”.

To this end, he was cautious about using the recent revenue windfall — a result of the commodities boom — to make any permanent spending commitments. 

According to the medium-term budget policy statement (MTBPS), revenue for 2021-22 is now estimated to reach R1.5-trillion, compared with R1.4-trillion at the time of the main budget in February. This marks an upward revision of R120.3-billion. The consolidated budget deficit is expected to be 7.8% of GDP in 2021-22.

Revenue gains from the commodities boom are expected to be temporary, Godongwana said, noting that precious metal prices have already started to soften.

One permanent spending commitment the treasury has been called on to consider a basic income grant. On Thursday, Godongwana made no reference to the grant, but said details on the government’s interventions with regard to the social security net will be provided at February’s budget.

He said: “Overall, the South African government is acknowledged as having one of the most comprehensive and expansive social security systems in the world, and there are

ongoing discussions about the social safety net … Let me however reiterate that a permanent solution in responding to these challenges is to achieve high and sustained levels of economic growth.”

Earlier in the week, the DA briefed the media on its alternative MTBPS, where the party said it does not support the permanent expansion of the grant system at this stage. 

Ashor Sarupen, who serves on the DA’s appropriations committee, said there may be space in the fiscus to extend the social relief of distress grant temporarily as a result of increased revenue from the commodity boom.

But, “in the medium to long term, South Africa’s approach should focus on reforms, which will boost growth. In an environment of strong growth, and reduced corruption and wasteful expenditure, expansion of social support as a dividend on growth and good governance could be possible,” Sarupen said.  

The medium-term budget should provide a clear fiscal departure away from emergency budgeting, implemented to address the short-term effects of the pandemic, towards a resilient fiscal framework that is focused on a balanced budget, economic growth and job creation, the DA said on Tuesday.

“While the recent cyclical commodities boom has provided a temporary reprieve to the fiscus, in the form of improved revenue, it is imperative that Minister Godongwana sets the country on a path of continued fiscal consolidation, sustainable public debt management and accelerated structural economic reform,” Sarupen said. 

“In order to ensure that this resilience-building focus is sustainable, it is important that South Africa urgently addresses its twin challenges of a high debt burden and stubbornly low economic growth rates.”

Though the DA commended Godongwana for staying on the path of fiscal consolidation, the party said in its statement after his speech that the minister fell short on a number of counts, including on the government’s plan to accelerate post-pandemic economic recovery.

“The MTBPS is entirely driven by the short-term commodities boom and there is no meaningful plan to sustainably grow the economy beyond just being a passive recipient of favourable global conditions,” it said.

The party referred to the government’s economic policy as “hopelessly inadequate” and  an obstacle in the path towards stable public finances.

Kaylie Pferten
A pilot of submersible crafts in a former life, now married to my husband David and writing about investment advice.

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