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Gordhan’s budget has too much tax and too much debt

Wednesday, October 23rd, 2013

Finance Minister Pravin Gordhan’s medium-term budget policy statement (MTBPS) that was tabled in Parliament today is based on an unsustainable model of deficit spending, mounting government debt and onerous taxation, trade union Solidarity said today. According to Gordhan almost 10% of next year’s budget will be spent on debt service costs.

According to Piet le Roux, senior economics researcher at the Solidarity Research Institute, the MTBPS falls short of sufficiently curbing the growth of the South African welfare state, of reining in government debt and of giving much-needed relief to battered taxpayers. ‘It is disheartening to hear Gordhan outline plans for continued expenditure on the so-called social wage that taxpayers have already realised long ago is wasteful and does not sustainably improve living standards in South Africa,’ said Le Roux.

Le Roux pointed out how precarious the South African national debt situation is. ‘Government debt has been rising over the past decade, particularly in the last four years. It now totals R1,6 trillion, not including direct government debt guarantees for financially unsound organisations like Sanral, Transnet, SAA and Eskom.’

‘While the current environment of unusually low interest rates means that the government debt service cost as a percentage of government revenue is currently only 10%, there is in fact a significant risk in the event of any normalisation of interest rates. Should interest rates return to the levels of a decade ago, government debt service cost as a percentage of government revenue could rise to around 17%. Such a debt service burden would be tough to bear and will haunt the economy in the form of higher taxes or higher inflation,’ he added. The graph below highlights the impact of interest rate normalisation on government debt service cost.

Capture

Meanwhile Solidarity expressed its disappointment that, despite undertakings to consider the union’s proposal of tax rebates for expenditure relating to personal security earlier this year, Gordhan has not engaged Solidarity. Solidarity has also not received replies to its letters to Minister Gordhan or the Treasury’s spokesperson, Jabulani Sikhakhane, regarding the issue. Solidarity remains convinced that taxpayers should be given relief from what appears to be an ever-increasing tax bill.

Click here to view the official press release.

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