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Nene’s plans are concrete

- By Wits University

Comment by Dr Kenneth Creamer, economist in the Wits School of Economic and Business Sciences, on Finance Minister Nhlanhla Nene’s Medium Term Budget Policy Statement:

Central message – a turning point has been reached

In the Medium Term Budget Policy Statement Finance Minister Nhlanhla Nene has outlined concrete plans to consolidate South Africa’s public finances and restore macroeconomic balances. The proposed adjustments – lower than planned spending and increased tax revenues - will be challenging and require some understanding and support from ordinary South African, but doing the right thing now will open the way for increased levels of investment-led growth and job creation.


Government has been running a counter-cyclical fiscal stimulus for the past five years since the global recession. This has assisted in stimulating demand and limiting job losses, but it is not a stance that can be carried on indefinitely.  As growth remains low, the fiscal stimulus has the potential to become counter-productive. It risks pushing South Africa’s national debt and debt repayments to unacceptable levels.

Nene appears to have a clear grasp of this problem and he has signaled a clear intention to change the fiscal policy stance from stimulus to consolidation. This is not an easy task and will require determined action by government and clear communication with all stakeholders in South Africa. The pain of the consolidation must be shared. The relatively well-off should be prepared to shoulder much of the burden. As Nene stated, the budget should not be balanced “on the backs of the poor”.

Fiscal consolidation

Fiscal consolidation, which will be measured by a reduction in the budget deficit over the next few years, will require the reduction of planned growth in government expenditure and increased tax revenue. Limits on government expenditure are likely to result in lower than hoped for public service wage increases, service delivery bottlenecks and a slow-down in certain aspects of public infrastructure expansion.

In the context of an ongoing low rate of economic growth, increased tax revenues will require a broadening of the tax base, increased tax compliance and morality, and possibly increased tax rates on consumption and wage earners, particularly high wage earners. Such tax increases will pose difficulties and adjustments for South Africans, but as Nene has indicated such a step may be essential if the country is to avoid falling into a debt trap. The sale of non-strategic state assets assists in raising funds for the fiscus, but this may not be enough to avoid raising some taxes in February next year.

Increase role for private sector investment

A central problem that needs be overcome is that government’s fiscal stimulus and infrastructure-led programme has failed sufficiently to stimulate, or crowd-in, private sector investment in the manner envisaged when the policies were first implemented. State-led economic transformation does not imply that the state can go it alone in driving development. Rather, successful state-led investment must serve as a catalyst for increased levels of private sector investment.

The state’s role is to drive infrastructure programmes and expand access to services so as to open up new economic opportunities and change the economy’s inherited racialised patterns. The private sector’s role, both big business and small, is to thrive in the space created as the economy’s opportunities expand, to deploy new know-how and technologies and to operate efficiently and competitively in such a way as to benefit consumers, employees and, ultimately, the fiscus.

Engagement with business and labour

The vision of investment-led growth can be achieved if South Africa can get the public and private sectors working together more effectively. Nene’s budget statement has opened the way for a range of increased private sector investment initiatives, such as, special economic zones, independent power projects, cogeneration power projects and renewable energy projects. It has also laid a solid basis for President Jacob Zuma’s engagement with the private sector, later this week, on how best to increase investment in South Africa and Deputy President Cyril Ramaphosa’s engagement with labour early next month on how to improve labour relations in the country.

While being absolutely necessary, increased investment is unlikely to be sufficient, given the scale and historical damage wrought by South Africa’s structural unemployment problem. Redistributive activities, including quality public education and public health services, as well as social security safety nets are all necessary for stability and social cohesion.

Also read: SA could face fiscal cliff – Based on research undertaken by Professor Jannie Rossouw (Head, School of Economic Sciences, University of the Witwatersrand), together with Fanie Joubert and Adèle Breytenbach (both from the Department of Economics at the University of South Africa).

Download media coverage:

Dr Kenneth Creamer (Broadcast and print)

Professor Jannie Rossouw (Radio; television; print)