Busi Mavuso: Escaping 15 Years of Low Growth

In the next two weeks, we will be receiving our third budget of the year.

To put it simply, it is vital for the nation to have a budget that promotes growth.

The difficulty of this budgeting process arises from sluggish economic growth.

For sustainable public spending, we need to achieve growth that consistently yields government revenue.

At present, our politicians are faced with tough choices, complicated by various factors such as the trade wars that began in February, when the economic outlook was more optimistic.

Currently, our expectations for economic growth have diminished.

This has led to lower tax revenues for the government, as businesses are likely to become less profitable and consumer spending will wane.

The budget situation we are confronting is more dire than it was two months ago.

As I have pointed out in previous communications, to avoid worsening the bleak economic outlook, it is crucial that the budget does not contribute to increased debt levels.

The National Treasury has been working diligently to recover from the financial crisis that impacted the government five years ago.

Ratings agencies have acknowledged this effort and improved our credit outlook.

We must aim to regain the investment-grade credit rating we lost in 2020.

Doing so will reduce the cost of debt for the government and the economy as a whole, offering a boost for growth.

If we take the opposite route and allow debt levels to rise, investors will demand higher interest rates to buy government bonds, consuming more tax dollars and stifling economic growth.

This leaves us with two genuine options: either raise taxes to generate more revenue or cut expenditures.

Politically, the initial proposal from the National Treasury to increase VAT has been firmly rejected.

The alternatives are then to identify other taxes or to find areas to trim spending.

The challenge for the Treasury lies in the limited options for increasing taxes beyond VAT.

While some political factions advocate for tax hikes, personal income and corporate taxes are already high compared to global standards.

Consequently, any further increases could push individuals and businesses to relocate their economic activities abroad.

The Treasury’s research indicates this could lead to even lower tax collections, as businesses exit, resulting in job losses.

Suggestions have been made for SARS to enhance tax collection through improved efficiency and practices.

While this is a commendable goal, it is not a reliable budgeting strategy.

Those of us in the business sector know that while budgeting for expenditures is straightforward, forecasting revenue generation is far more complex.

Prudent budgeting is critical, and depending on projected excess tax revenues is not a sound approach.

Therefore, the only feasible path forward is to align expenditures with our actual means.

This is always a politically sensitive issue, often resulting in winners and losers.

Understandably, no politician wishes to be the one to announce the termination of a government program.

However, each year, the government initiates new projects and creates new spending lines.

While this is beneficial, it increases entities that do not consistently provide value for taxpayers.

When it comes to cost-cutting, we require a mature and honest evaluation of which government functions deliver value and the political courage to make necessary cuts when they don’t.

Although it’s positive that our budget is subject to democratic scrutiny, the government of national unity, alongside other parliamentary members, must show the political courage to make potentially unpopular decisions.

Certainly, there are numerous other measures we can implement to stimulate growth, and one of our greatest assets is the collaborative relationship between business and government.

I am looking forward to the upcoming meeting between organized business and the president this Friday.

Our last meeting in January was fruitful, aligning us on crucial structural reforms.

Significant progress has been made in areas like electricity and logistics reform, but the global landscape has shifted.

This change occurred prior to the U.S. election and the introduction of tariffs.

During that meeting, we aimed for a 3% growth rate by the year’s end.

Given global conditions, reaching this goal will now be a challenge, but that should not discourage us; rather, it should inspire us.

We must intensify our efforts to implement reforms that enhance our economy’s performance, as the urgency for action has heightened.

We need to carefully consider how opportunities have shifted and ensure our partnership and plans align with the current global landscape.

The budget situation emphasizes the significance of growth for our country.

We must break the low-growth cycle we’ve endured for the past decade and a half.

Accomplishing this will demand courageous and innovative thinking, especially in our new global context.

I look forward to collaborating with my colleagues in business and government to achieve this.

*This column was first published in the Business Leadership South Africa (BLSA) weekly newsletter. The author, Busisiwe ‘Busi’ Mavuso, is the CEO of BLSA.

*The views Busi Mavuso expresses in this column are not necessarily those of The Bulrushes.