South Africa faces a further credit downgrade because government is “actively destroying capital” by not saving and borrowing more than it is collecting, Efficient Group chief economist Dawie Roodt said on Wednesday.<\/p>\n
The biggest single player in the economy was the state, which gathered revenue mostly through various taxes, Roodt told journalists in Johannesburg.<\/p>\n
“They [government] spend more than what they get in, and that difference is called the fiscal deficit, and we usually express that as a percentage of the economy,” he said.<\/p>\n
“What happens is that the fiscal deficit is the amount of money they have borrowed.”<\/p>\n
For example, if a person went to the bank and borrowed money to build a new room for a new baby, that was capital expenditure, which was ok.<\/p>\n
However, if that same person went to the bank, borrowed money and went to Mauritius to “make the baby” that was current expenditure, which was not good.<\/p>\n
“This is what’s happening in South Africa,” Roodt said.<\/p>\n
“The minister of finance borrows R200 billion long-term money, and of that R200bn, half of that is spent on a new room for the new baby, and the other half he uses to go to Mauritius.”<\/p>\n
It meant the minister was actually destroying capital, through doing the opposite of saving, and in the process his debt levels would keep rising.<\/p>\n
“My suspicion is we are going to see a downgrade because of this… I’m very concerned about this because the economy is… weak,” Roodt said.<\/p>\n
The state was not obtaining the necessary revenue through taxes, which meant the deficit was bigger, and more money would need to be borrowed.<\/p>\n
Roodt said companies were the biggest savers in South Africa, and while households were saving, it was not nearly enough, nor were enough households saving.<\/p>\n
The government, meanwhile, was “actively destroying capital” in the region of R100bn annually, because it was not saving.<\/p>\n
“Remember, savings is postponed consumption. I produce today but I don’t consume everything,” Roodt said.<\/p>\n
“I postpone some of my consumption. This saving is the opposite where I consume today tomorrow’s production, and that is what the minister of finance is doing.”<\/p>\n
Part of the reason why households were not saving enough was because the tax burden on potential savers was so high.<\/p>\n
As a result, there was very little left over to save.<\/p>\n
Roodt, responding to a question about government’s proposed retirement reforms, said government was not consulting enough with people.<\/p>\n
“It’s not about the retirements only, look at the e-toll [consultation] process for example… I think government is ideologically a little bit confused because they don’t know what they are,” he said.<\/p>\n
“They are not following a specific ideology. They’re sort of all over the place, and you get all these different comments and contradictory statements by politicians and so on.”<\/p>\n
SA economy shrinks 0.6% in first quarter<\/strong><\/a><\/p>\n SA economy heading for recession: economist<\/strong><\/a><\/p>\n