Budget won’t prevent SA downgrade: DA

The DA says that the Minister of Finance, Pravin Gordhan, has not done enough in his Budget Speech to prevent a ratings downgrade, which it believes is now a matter of time.

DA Shadow Minister of Finance,  David Maynier, said that Gordhan was in a tight spot with very little fiscal space, and even less political space, available to him to deal with the economic crisis and the risk of a sovereign ratings downgrade.

“We do not think that the Minister has done enough to avoid a sovereign ratings downgrade in South Africa,” he said.

The DA noted that the ratings agencies are monitoring several “risk areas” including (1) economic growth, (2) fiscal consolidation and (3) state owned enterprises.

A sovereign ratings downgrade to sub-investment grade, or “junk status”, will raise the cost of borrowing, result in capital outflows, lead to further currency weakness, and increase the cost of living for ordinary people in South Africa, the political party said.

Read: What junk status means for South Africa

Economic Growth

The DA said that the Minister announced no significant new measures to boost economic growth and create jobs and was more or less left pleading with his cabinet colleagues to implement the National Development Plan.

The primary economic growth driver in the National Development Plan is infrastructure development.

A total of 10% of GDP should be spent on infrastructure development in terms of the National Development Plan, said Maynier. “However, the budget reveals that spending on infrastructure is lower than 10% of GDP and will actually decrease as a percentage of GDP between 2016/17 and 2018/19.

Infrastructure Spending [%GDP]

  • 2016/17 – R4 306,00 or 6.38%
  • 2017/18 – R4 658,00 or 6.12%
  • 2018/19 – R5053.00 or 6.05%

Fiscal Consolidation

The DA said that the Minister fell short of his commitment to fiscal consolidation and instead introduced a mix of revenue raising measures, totalling R18.1 billion, but there were no additional expenditure cuts in 2016/17.

This would result in a fiscal deficit of R139 billion or 3.2% of GDP, which will be reduced over the medium term to 2.4% of GDP by 2018/19.

Moreover, debt services costs have skyrocketed and are projected to be R147.7 billion in 2016/17, R161.9 billion in 2017/18 and R178.6 billion in 2018/19, it said.

“We were disappointed that instead of tax increases the minister did not announce other revenue raising measures such as the sale of non-strategic state assets, which could have raised billions in revenue,” said Maynier.

“We were also disappointed that the minister did not announce real spending cuts including reducing the size of President Jacob Zuma’s bloated cabinet , which could save up to R4.7 billion.”

The political party called on Gordhan to announce a comprehensive spending review designed to identifying savings and eliminate wasteful expenditure before the Medium Term Budget Policy Statement in 2016.

Unemployment

The DA said was disappointed that the Minister made no clear commitment to rollover the Employment Tax Incentive which lapses on 01 January 2017.

“We will continue to fight for a speedy review of the Employment Tax Incentive and a rollover of the Employment Tax Incentive between 2016/17 and 2018/19.

“We will not allow the budget to be balanced on the backs of young people who do not have jobs, or have given up looking for jobs, in South Africa,” Maynier said,

State Owned Enterprises

The DA said it was ‘pleased’ that the minister announced that the finding of the Presidential Review Committee on State Owned Entities would be implemented.

“We welcome the minister’s commitment to find an equity partner for SAA. However, we believe the minister should have gone further by announcing the privatisation of failing state-owned enterprises, including South African Airways,” Maynier said.

“In the end, the minister did not have enough political clout to deliver on economic growth and state owned enterprises.

“And, we believe therefore that the minister has probably not done enough to avoid a ratings downgrade in South Africa.”

Poor Households

That the budget only provides for R147.4 billion for 17.7 million grant beneficiaries in 2016/17 is not enough, the DA said.

This is only a 7.5% increase, which is just above projected inflation of 6.8%, but far below projected food price inflation according to the South African Reserve Bank, it added.

Higher Education

The DA welcomed the fact that the minister committed additional funding to Higher Education, R4.9 billion in 2016/17, R5.6 billion in 2017/18 and R5 billion in 2018/19.

“However, we were disappointed that the minister did not announce a further increase in funding for to provide for (1) additional funding for students who qualify for funding through the National Student Financial Aid Scheme; and (2) increases in university subsidies,” Maynier said.

More on the Budget 2016

Forget Nkandla, Zuma should pay for damages to the economy

Zuma says SA economy has a silver lining

Zuma must fall – or the economy will: economist

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Budget won’t prevent SA downgrade: DA