Business people are extremely concerned about the prevailing economic conditions and warn that the government simply can’t afford any social allowance.
Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), says the country is facing tough times, especially when it comes to the government’s fiscal management.
“Government revenues are suffering from the reality of low economic growth in which tax collection is also less than expected,” explains Mavuso.
“The low economic growth puts further pressure on social grants that are supposed to help those caught in the poverty trap.
“The challenge is that the government simply has to turn off the spending taps, because it simply cannot afford it,” she says.
According to Mavuso, this will lead to more debt – at a time when interest rates are already high and the appetite for investment is low -.
“Any more loans will have costly consequences for the country and only further exacerbate our economic growth problem.”
Mavuso says businessmen and investors will then become increasingly concerned about the sustainability of government finances and this may further limit investments and economic activity.
She says the national treasury is well aware of these challenges and has worked with the rest of government to look for ways to save money, reduce expenditure and try to balance the books.
“They also considered the option of increasing the VAT rate. However, the cabinet, no doubt aware of a national election next year, was opposed to these efforts, and especially to anything that could limit the government’s wage bill,” says Mavuso.
“There is a significant risk that populism dominates and that this can lead to reckless spending – when the country can least afford it.”
She believes it will have a negative effect if money from the economy is used for taxes, loans, or to further finance the state.
“Furthermore, it will raise fears of a financial crisis when the government can no longer pay its debts.”
Mavuso says she is in favor of extending the grant, provided it is affordable and sustainable.
“In times of strong fiscal performance, such as before the financial crisis in 2008, the state massively expanded welfare spending, without harming business confidence.
“However, we are not in such a time now – now would be completely the wrong moment to expand spending, it would exacerbate negative sentiment and doom us to an even worse growth outlook,” says Mavuso.
“South Africa’s business sector and the government should instead unite to ensure the best growth prospects possible to enable the spending that is needed.”