Budgeting for Jobs – Accelerating growth and fighting poverty

The DA’s alternative Medium Term Budget Policy Statement in October 2021, proposed a fiscal policy platform for a post-pandemic economic resilience that would enable prudent fiscal management, unlock economic growth, disrupt high levels of unemployment and alleviate the disproportionate impact of rising inflationary pressures on the poor.

The policy imperatives of these key deliverables have not changed and provide the framework for the DA’s Alternative Budget for 2022.

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Achieving economic growth that generates jobs, especially after the devastating effects of a global pandemic, will test the mettle of our collective national resolve. It is a challenge that we have to confront head on, if we are to address the staggering levels of unemployment and increasing poverty among vulnerable groups in our country.

The DA’s 2022 Alternative Budget presents how a DA government will:

Reverse the upward debt spiral by containing debt and managing expenditure.
Attract investment capital and encourage savings to accelerate economic growth.
Stimulate economic growth enablers by ensuring energy and water security, attracting retired educators back into the system and reforming State Owned Enterprises for private investment.
Fight corruption by making an exception to our commitment to no new taxes or tax increases, by imposing a punitive Corruption Tax.
Protect vulnerable South Africans by introducing a conditional Basic Income Grant, supporting small, medium and micro business enterprises in particular and leveraging pension fund assets to the benefit of fund members.

The DA continues to emphasize the importance of faster economic growth to address staggering levels of unemployment, unsustainably high public debt and growing poverty levels. To unlock the growth dividend, our economy should be opened up to more private investment and innovation.

Debt warning alarm for South Africa

For the first time since South Africa’s democratic transition, the International Monetary Fund (IMF) and the World Bank have extended emergency loans to our country with a combined total of R76 billion. Although Treasury has tried to justify the loans as concessionary with low interest rates, and necessary to stave off the socio-economic effects of the Covid-19 pandemic, the reality is that government is unable to meet its spending obligations from the fiscal balance sheet and has now been forced to borrow from international finance institutions.

Failure to take the necessary steps now to address the growing national debt crisis, restore economic growth and the conditions necessary to create jobs, will push South Africa further into the debt embrace of the IMF and World Bank, this time for loans with more onerous conditions.

The DA will re-introduce the Fiscal Responsibility Bill to bring national debt under control and introduce a statutory fiscal rule for the first time.

Through targeted spending cuts and savings, the DA’s debt containment model shows that national debt can be brought under control sooner, and at a lower rate, than the ANC government’s stated objective.

Accelerate Economic Growth

In order to move beyond the lethargic growth rate of the past decade and unlock growth levels that will open up opportunities for economic participation among South Africans, the DA proposes to attract investment and encourage savings through:

Reducing regulation and oversight levies for the financial sector;
Raising the threshold on taxes on interest earned to R500 000;
Tax relief on rental income for individual taxpayers;
Increase annual tax free savings limit to R100 000;
Scrap remaining exchange controls;
Cut tax on fuel.

The DA believes that part of the intervention needed to improve South Africa’s fixed income investment indicator is through investment relief. Companies that, for example, invest between R10 billion and R12 billion in our economy should be given time bound tax breaks. These tax breaks should also be accompanied by practical interventions to provide policy certainty and economic structural reform.

For investment capital to flow, the investment climate must be attractive, barriers to doing business must be lowered and individual saving must be encouraged.

To fund the tax cuts contained in the DA alternative budget, we propose the following:

Procurement – prices paid by government departments must be open to public scrutiny and checked against what is readily available at retail and wholesale level.
Reward budget savings – Use it or lose it is a perverse incentive that results in unnecessary wasteful expenditure. Budget savings should be rewarded where appropriate.
Expenditure efficiency benchmarks – Expenditure efficiency benchmarks should be used to improve departmental performance.
Department relevancy tests or assessment – there are some departments that can be scrapped resulting in budget savings. The DA has previously argued that 15 core departments are enough to meet the administrative and governance needs of South Africa.

Real action on corruption

The DA will soon be introducing a Private Members Bill in Parliament to initiate a Corruption Tax. The private members bill will amend the Tax Administration Act and introduce provisions that will require that any company or organization implicated in corruption pay an additional percentage of company tax above the country’s corporate tax rate.

Economic enablers

Energy

While the DA welcomes the announcement made by the President in his State of the Nation address to establish an electricity transmission company, we are opposed to the idea that it be made a state controlled Eskom subsidiary.

What South Africa needs is an Independent Transmission Grid System and Market Operator (ITSMO) which will be responsible for system operation and the purchase of electricity from electricity generators.

Water Security

In order to improve water quality infrastructure and reverse the existing backlog in infrastructure maintenance, there is an urgent need to:

Progressively increase public investment in water infrastructure as a percentage of GDP.
Ensure that a Treasury-determined percentage of government grants to municipalities is spent on operational expenditure to manage existing infrastructure, especially the outdated water reticulation systems.
Open the water sector to private sector investment by allowing municipalities in good financial standing to enter into public-private partnerships for infrastructure investment.

Attract retired teachers

As part of interventions to recover the learning and teaching-time lost, and to address the high vacancy rate in the education sector, the DA proposes that government hires retired educators to fill the gap. The DA sets an initial investment of R3 billion to fund this initiative.

Readying SOEs for private investment

The President’s announcement that preparatory work has begun for the establishment of a state-owned holding company to house all commercial SOEs was not only ill-informed but does nothing to solve the current systemic challenges affecting these entities.

Instead of creating a new SOE to manage bankrupt SOEs, the government should be readying them for private sector investment.

Only a systematic programme of private sector participation will remove SOEs from being a burden on the fiscus and make them competitive on the market.

Support for vulnerable South Africans

The poor and vulnerable continue to shoulder most of the economic burden from the disruption caused by Covid-19 and lack of growth in our economy. As such, Government spending on direct cash support for the poor should be protected from cuts. With the savings realised from the DA’s targeted spending cuts and savings, the DA commits to protecting inflationary increases in social grants. This would entail social grant increases in excess of R30 billion over three years.

Basic Income Grant

The DA has been a longstanding supporter of the idea of income support for the unemployed. Our view is that a Basic Income Grant would provide an economic floor for the most vulnerable as well as put money directly in the hands of the people who are best placed to decide where to spend it. The market makes better allocative decisions than the government. However, we are concerned that the country simply cannot afford to support a growing number of dependents in an environment of low growth and a shrinking revenue base. It would seem therefore, that a Basic Income Grant would become increasingly feasible as an expenditure from the proceeds of growth, as opposed to increased taxes.

As economic growth is realised, a Basic Income Grant would become affordable. The DA has budgeted an additional R105 billion over the next three years for the introduction of a conditional Basic Income Grant. The grant would be made available on the understanding that it would only be provided when revenue generated from GDP growth is available. It would not be funded from additional tax.

Small, Medium and Micro Enterprises support

To unlock the growth dividend through Small, Medium and Micro Enterprises (SMMEs), the DA proposes the following:

Expansion of tax free savings especially into SMME companies by allowing more types of products into tax free accounts.
Better targeted tax incentives into venture capital and early stage companies.
Tax relief or tax holidays for startups and SMMEs – this also includes employees of the startup so that necessary skills are more affordable as part of the business set up costs.
Full BEE scorecard exemptions for start-ups – Upgrading the contribution level to level 1 from level 4 for exempt SMMEs (assuming BEE legislation is retained at all, given that the DA does not support this legislation).
Raise the threshold for what is classified as a (a) microenterprise: 50 million turnover (b) Small enterprise: R500 million turnover and (c) Medium enterprise: R2bn turnover.
Comprehensive regulatory relief for start-ups.

Leveraging Pension Fund Assets

A significant amount of investment capital is owned by Pension Fund members. To fund its developmental state model, Government aims to encourage funds to invest members’ money in infrastructure projects in the hope that this will create jobs.

Pension Fund members should be permitted to leverage their pension fund assets as collateral for a pension-backed loan and be able to access a portion of their pension fund before retirement. This two-tier system will enable a balance between current and future consumption to the benefit of hard working South Africans.

Conclusion

The DA is fully aware that economic reform cannot occur overnight. After decades of policy incoherence, economic damage caused by failed B-BBEE interventions, public financial mismanagement and high levels of corruption, an economic turnaround will require time and effort. A pathway to prosperity for all South Africans is possible.