Cape Town - Finance Minister Pravin Gordhan’s ability to deliver a rating agency-friendly fiscal budget on Wednesday will be limited by the political space available inside the tripartite alliance, the Democratic Alliance (DA) said on Monday.
DA parliamentarian David Maynier, who heads up the party’s finance portfolio, said in a report that for Gordhan to get the economics right, he will have to get the politics right.
However, he said his “capacity to do things differently is limited by the political space available inside the ANC/SACP/Cosatu alliance”.
“The temperature inside the ruling party alliance is already red-hot following the battle over retirement reform,” he said.
“And [trade federation] Cosatu is opposed to rolling over the Employment Tax Incentive, increasing Value Added Tax and the privatisation of state-owned enterprises.
“All this will limit the minister’s ability to effectively respond to the economic crisis and the risk of a ratings downgrade in South Africa.”
The DA said Gordhan faces five big challenges going into the budget: Dealing with high levels of unemployment; avoiding a sovereign ratings downgrade; providing relief to poor households; dealing with the student fees crisis, and providing drought relief.
To get it right, “the minister will have to cross at least four ‘red lines’, including announcing new measures to promote economic growth, achieve fiscal consolidation, stabilise national debt, and privatise - or part-privatise - state-owned enterprises (SOEs), to avoid the risk of a ratings downgrade in South Africa”, the DA said.
If Gordhan fails to convince the rating agencies the government is serious about its fiscal policy, a downgrade to junk status could occur before 2017, analysts warn.
“A sovereign ratings downgrade to sub-investment grade… will raise the cost of borrowing, result in capital outflows, lead to further currency weakness, and increase the cost of living for ordinary people in South Africa,” said the DA.
On its wish list of remedies, the DA wants Gordhan to raise revenue through the sale of non-strategic liquid assets like Telkom (R11bn) and other buildings, conduct a major review of government spending and provide social grant beneficiaries with an above inflation-related increase.
“A good place to start cutting spending would be on President Jacob Zuma’s bloated cabinet, which could be reduced to 15 ministries, saving approximately R4.7bn per year,” it said.
The DA is concerned not enough is being done to respond to the drought that is affecting the agricultural sector.
“The minister should announce that additional funding will be made available for drought relief to be used… for loans and grants to farmers, wage subsidies for farmworkers, feed packages to sustain livestock, and education programmes on farming in low- water conditions,” it said.
Failing state-owned enterprises
The DA wants government to allow private sector investment in failing state-owned enterprises (SOEs) and to announce the privatisation of South African Airways, among other SOEs.
“There are approximately 300 SOEs with a net asset value estimated to be R274bn in 2013/14,” it said. “Provision for contingent liabilities are expected to increase by R311.2bn, or 38.5%, from R195.3bn in 2008/09 to R506.5bn in 2016/17.”
Regarding education, the DA said R4.5bn in additional funding needs to made available to “assist poor students with funding through the National Student Financial Aid Scheme”.
It wants Gordhan to announce additional funding for students who qualify, increase university subsidies, to provide investment in faculty, equipment and infrastructure to support students, and to call on the private sector to assist to overhaul the funding model and debt-collection system employed by the National Student Financial Aid Scheme.