The Budget must set the stage for investment growth if Thabo Mbeki’s ambitious employment plan is to succeed, writes Madeleine Wackernagel
Thabo Mbeki’s ambitious blueprint for economic growth and job creation brings into sharp focus the need for the “right” Budget on March 13. Without the building blocks to encourage foreign and local investment, the government’s strategy will fall at the first hurdle.
The deputy president’s speech to the inter- governmental forum went further than most by setting out, for the first time, specific targets for growth and employment creation. And while commentators and business leaders welcomed its contents in principle, there was scepticism at how it would be put into practice.
It is indeed a tall order. With unemployment at 40% South Africa cannot afford to do nothing. Says Jayendra Naidoo, executive director of Nedlac: “We have got to produce jobs in a hurry; no society can expect stability with unemployment that high. So we are looking at public works programmes as a way of mopping up some of the excess unemployment.”
Mbeki highlighted certain sectors of the economy as being the new growth generators, especially tourism and exports. The danger of such targeted incentives is that comparative advantage is ignored, with possible increases in inefficiencies, says Dennis Dykes, chief economist of Nedcor. The best growth incentives are lower taxes to attract “bricks and mortar” investment, which creates more long-term jobs.
Says Leslie Boyd, Anglo-American deputy chairman and head of Business SA: “The very high rates of corporate tax are a serious impediment to investment, both by local and foreign firms. Government must consider dropping the secondary tax on companies, or at least bringing it down.”
Economists stress the need for a stable fiscal climate to encourage growth; any startling moves in the next Budget could frighten off foreign investors. Adam Jacobs, Amalgamated Banks of South Africa (Absa) economist, says government must cut its dis-saving, control expenditure and improve efficiencies — in other words, maintain a robust discipline over its finances.
Personal tax levels are another contentious issue, with fiscal drag a severe block on efficiency and productivity. Government promises to alleviate the effect of fiscal drag have still not materialised.
But a “new deal”, when the details emerge next month, is unlikely to feature the type of Keynesian kick-start favoured in the United States and Europe 30 years ago.
Essop Pahad, political adviser to Mbeki, stressed that fiscal discipline was still high on the government’s agenda, although he implied that the budget deficit was not of the magnitude that would scare off foreign investors.
There is a case for arguing that fiscal responsibility is more important than fiscal discipline. Unemployment and crime, says one economist, are far less sustainable in the long run than budget deficits —- and by far the biggest impediments to growth in South Africa.
Indeed, “if the government is serious about creating a climate conducive to long-term growth, it should concentrate less on market forces and more on law and order”, said one analyst.
But whatever the nuts and bolts of Mbeki’s “masterplan”, the onus is on Minister of Finance Chris Liebenberg to send the right signals to the foreign and local investment community.