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04 March 2020 | Story Jean-Pierre Geldenhuys | Photo Supplied
geldenhuysJP
Jean-Pierre Geldenhuys.

As has been the case for the past five years, the latest (2020) budget paints another sobering picture of South Africa’s public finances and short-term economic outlook. Of particular concern is that this budget does not project that the government debt ratio will stabilise in the medium term (by 2022/23), which means that the current fiscal policy trajectory is unsustainable (which National Treasury acknowledges in the Budget Review). This makes a rating downgrade by Moody’s in March all but inevitable. 

In the budget that was tabled on Wednesday, the budget deficit is projected to be 6,3% in 2019/2020, while increasing to 6,8% the following year, before gradually declining to a still unsustainable 5,7% of the GDP by 2022/23. These large budget deficits contributed to large projected increases in the government debt-to-GDP ratio: this ratio is projected to increase from about 62% in 2019/20 to about 72% by 2022/23. To understand the extent of the deterioration of South Africa’s public finances over the past 12 months, it should be noted that this ratio was projected in the 2019 budget to increase to about 60% by 2022/23.

Burger and Calitz (2020) show that the government debt-to-GDP ratio can be stabilised (and fiscal sustainability can be restored) if: the gap between real interest rates and real GDP growth is reduced, and/or if the primary balance (government revenues minus non-interest government spending) is adequate to avoid an increase in the debt ratio. They then show that the debt ratio has increased over the past decade because the (implied) real interest rate on government debt has increased and the real growth rate has decreased and government ran large primary deficits, at a time when large primary surpluses were required to avoid increases in the debt ratio. 

Between 1998 and 2007, the debt ratio was reduced from just under 50% to just under 30%. This period (especially from 2002 onwards) was characterised by (relatively) high economic growth. Fast economic growth is crucial to stabilising the debt ratio and restoring fiscal sustainability. National Treasury (NT) has proposed structural reforms (aimed at reducing regulatory burdens and backlogs and increasing competitiveness in the economy) to stimulate private sector investment and growth. Given the constraints that continued load shedding will put on South African growth in the near future, as well as projected slower growth in the economies of our main trading partners, and the uncertainties associated with disruptions wrought by the coronavirus outbreak, it remains to be seen if private sector investment will increase and stimulate growth (available evidence in any event suggests that private sector investment tends to follow, not lead, economic growth). 

With growth likely to remain slow, lower real interest rates and lower budget deficits are required to reduce the debt ratio and restore fiscal sustainability. These interest rates will more than likely increase if Moody’s decides to (finally) downgrade its rating of South African government debt.

With low economic growth and high real interest rates, stabilisation of the public debt ratio means that the budget deficit must be reduced. To reduce the budget deficit, government can: (i) increase taxes, (ii) decrease spending and (iii) increase taxes and reduce spending. Given that fiscal policy is unsustainable in South Africa, it is surprising that NT decided against increasing taxes (other than customary annual increases in the fuel levy and excise taxes) in this budget – many analysts were expecting some combination of higher personal income tax, VAT, and company taxes. As reasons for not raising taxes, it cites low expected economic growth, and that most of the efforts to reduce the budget deficit in the past five years have been centred on using tax increases. Even more puzzling, the budget granted real tax relief to taxpayers, as income tax scales were adjusted by more than expected inflation. 

All efforts to rein in the budget deficit therefore rely on government spending reductions. To this end, NT is proposing to reduce government spending by about R260 billion over the next three years. This reduction in spending is comprised of a R160 billion reduction in the wage bill, and a further R100 billion reduction in programme baseline reductions. At the same time, as a proposal for wage cuts, government is allocating even more money to prop up the balance sheets of many SoCs, with R60 billion allocated to Eskom and SAA (while the Minister referred to the Sword of Damocles when referring to SAA in his speech, a more apt analogy for government’s response to the financial crises facing many of its SoCs might rather be the paradox of Buridan’s ass). While government has announced plans for the restructuring of Eskom and has placed SAA in business rescue, so far there is no feasible consensus plan to address Eskom’s mounting debts and dire financial situation, which poses a systemic risk to the South African economy. 

Regarding the proposed reductions to the wage bill, NT believes that its target can be achieved through downward adjustments to cost-of-living adjustments, pay progression and other benefits. Furthermore, the Budget Review also states that pay scales at public entities and state-owned companies (SOCs) will be aligned with those in the public service to curtail wage bill growth and ‘excessive’ salaries at these entities. We are also told that government will discuss the options for achieving its desired wage bill reduction with unions. Given the precariousness of the public finances, and the understandable objections of workers and unions, one must ask why these discussions were not already in full swing by the time that the budget was tabled? 

Regarding the proposed cuts to government programmes, NT notes that it tried to limit these to underperforming or underspending programmes, and that the largest cuts will be in the human settlement and transport sectors. But, as NT acknowledges, any cuts to government programmes will negatively affect the economy and social services; the budget speech also states that the number of government employees has declined since 2011/12, which also affects the provision of public and social services adversely (the Minister explicitly mentioned increased classroom sizes, full hospitals, and too few police officers during his speech). 

Apart from the proposed spending cuts, the proposed allocation of spending is unsurprising and reflects long-standing government priorities: spending on basic education, post-school education and training, health and social protection takes up 13,6%, 6,7%, 11,8% and 11,3%, respectively. Increases in social grants range between 4 and 4,7%, which means small real increases in most social grants (only if inflation remains subdued). Worryingly, debt service costs are expected to take up more than 11% of total government spending (and is projected to exceed health spending by 2022/23). These costs are projected to grow by more than 12% by 2022/23 (almost double the growth in the fastest growing non-interest expenditure category). These figures vividly illustrate how a high and increasing debt-to-GDP ratio limits the scope for increased spending on important public and social services. 

Unless fiscal sustainability and the  balance sheets of SoCs are restored, the scope for the government to increase spending to combat poverty, rising inequality, and unemployment will be severely limited – as would the scope for countercyclical fiscal policy, should the local economy again slide into recession. The stakes are high, and the cost of indecisiveness is increasing.

This article was written by Jean-Pierre Geldenhuys, lecturer in the Department of Economics and Finance in the Faculty of Economic and Management Sciences 

News Archive

A new dawn for student governance
2011-09-02

 

Our SRC presidents: Richard Chemaly (Bloemfontein Campus) and Bongani Ncgaca (Qwaqwa Campus)
Photo: Hannes Pieterse

Photo Gallery
 

The successful and peaceful completion of the University of the Free State’s (UFS) Student Representative (SRC) elections 2011 herals a new dawn for student governance with the announcement of the results today (1 September 2011).

The SRC elections at the Qwaqwa Campus were completed on 25 August 2011, while the elections at our Bloemfontein Campus took place on 29 and 30 August 2011.

“A new dawn heralds a new day when Richard Chemaly, the son of Lebanese immigrants becomes President of an SRC, as elected by students from all racial backgrounds and from across the student body at large. A new day has arrived when candidates could have won voter support across racial lines; a new day is here when all SRC members are now recognised leaders on the basis of academic accountability,” the Dean of Student Affairs, Mr Rudi Buys, says.

A new dawn has arrived; firstly, insofar as student elections for the choice of student leaders at the UFS now proceed according to a non-racial and a non-party political basis.

Not only did the SRC elections at both the Bloemfontein and Qwaqwa Campuses achieve its required quorum, with 31% (4 729 votes) and 50% (2 112 votes) voter turnout, respectively, but the SRC elected by students at the Bloemfontein Campus is 55% black and 45% white, and 60% female and 40% male. The numbers of votes gained by successful candidates also indicate that voters from all racial backgrounds have voted for their candidates of choice.

Secondly, a new dawn has arrived insofar as student governance occupied by only some student groups claiming to speak on behalf of all students has made way for direct voting for candidates by the broad student body and the threefold increase of student governance structures on campus.

Not only did all students at our Bloemfontein and Qwaqwa Campuses (a total of 15 173 and 4 257, respectively) have the opportunity to participate in voting directly, but nine additional Student Councils were established at our Bloemfontein Campus that each holds an ex officio seat on the SRC and allows for student governance in all the major student sectors of the student body, such as for postgraduate students, international students and all categories of student associations.

The various councils now established include the Student Academic Affairs Council, the Student Associations Council, the Postgraduate Student Council, the International Student Council, the Student Media Council, the Residences Student Council, the Commuter Student Council and the Rag Community Service Fundraising and Service Councils. In addition, all faculties also introduced student representative structures at departmental and faculty level in 2011 to ensure student participation in faculty management and governance.

The SRC members at the Bloemfontein Campus are:

Elective portfolios:
President: Mr Richard Chemaly
Vice-President: Mr Lefata David Maklein
Secretary: Ms Matshepo Ramokgadi
Treasurer: Mr Werner Pretorius
Arts & Culture: Ms Alta Grobelaar
Accessibility & Student Support: Mr William Clayton
First-generation Students: Ms Petre du Plessis
Media, Marketing & Liaison: Ms Biejanka Calitz
Sport: Mr Bonolo Thebe
Student Development & Environmental Affairs: Ms Busisiwe Madikizela
Transformation: Ms Qaqamba Mhlauli

Ex officio portfolios:
Dialogue & Ex officio: Associations Student Council: Mr Anesu Ruswa
Academic Affairs & Ex officio: Academic Affairs Student Council: Mr Jean Vermaas
Residence Affairs & Ex officio: Campus Residences Student Council: Ms Mpho Mokaleng
City student Affairs & Ex officio: Commuter Student Council: Ms Annemieke Plekker
Postgraduate Affairs & Ex officio: Postgraduate Student Council: Ms Glancina Mokone
International Affairs & Ex officio: International Student Council: Mr Pitso Ramokoatsi
Student Media Affairs & Ex officio: Student Media Council: Ms Nicole Heyns
RAG Community Service & Ex officio: RAG Fundraising Council: Ms Iselma Parker
RAG Community Service & Ex officio: RAG Community Service Council: Ms Motheo Pooe

In the Qwaqwa elections, SASCO achieved 36,84% of the vote, with SADESMO, PASMA and NASMO each achieving 29,73% and 18,56% and 12,74%, respectively .

Mr Bongani Ncgaca was elected as the President of the SRC at our Qwaqwa Campus, while the names of the SRC members at the campus will be announced on 7 September 2011.

The Central SRC will be established on 8 September 2011 by a joint sitting of the two SRCs.

The successful completion of the SRC elections at the Bloemfontein Campus follows a yearlong review process of student governance by a Broad Student Transformation Forum (BSTF) that consists of 59 delegations from student organisations and residences. The BSTF adopted independent candidacy for elective portfolios and additional student councils to provide ex officio seats on the SRC as the template for student governance, following the consideration of a series of benchmarking reports on student governance nationally and internationally.

The UFS Council adopted the new SRC Constitution, as drafted and submitted by the BSTF, on 3 June 2011. 
 

Media Release
1 September 2011
Issued by: Lacea Loader
Director: Strategic Communication
Tel: 051 401 2584
Cell: 083 645 2454
E-mail: news@ufs.ac.za
 

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