economists
Lynda Loxton
Finance department officials this week warned against the growing temptation in some circles to deal with the inability of the economy to create enough new jobs by increasing the Budget deficit.
Deputy director general Maria Ramos and special adviser Charles Stride were joined by leading economist Edward Osborne of Edey Rogers in sounding the warning to the parliamentary joint standing committee on finance during its week-long hearings on the 1996/97 Budget.
The Budget saw Finance Minister Chris Liebenberg once again standing by his pledge to cut the deficit by at least 0,5% a year, this time to 5,1%.
But there have been growing calls for government to increase its deficit for greater public spending on job creation and delivering the social services and houses promised for so long.
Ramos said deficit spending was a dangerous and unsustainable route to take, given that South Africa already had a massive R311- billion debt and servicing that debt was taking up more and more of the Budget each year. So increasing the debt even further would not provide the kind of money needed for job creation and social services.
Stride said appeals for larger deficits “should be dismissed out of hand”, given the pressure this would place on the economy as a whole in a totally unproductive way.
Ramos said the government was considering ways to manage its debt more efficiently and to bring down the cost of servicing that debt. At the other end of the scale, it was also looking at its parastatals and ways they could become more efficient and profitable so they could contribute to, and not be a drain on, state coffers.
Stride said he had been horrified to discover how badly mismanaged state enterprises were and said the country’s current high debt was a symptom of the state’s past failure to manage its assets properly.
In their present state, he was not in favour of selling them to reduce government debt or pay for social services. They had to be turned round and made profitable and efficient before any privatisation was considered.
He was particularly incensed by the fact that the state had to borrow money to give to parastatals to shore up their pension funds, and they then invested that money in the stock exchange to maximise returns. Instead, he said, the asset base of the parastatals should be strengthened, they should be made profitable so that they could support their own pension funds and pay dividends to the state.
At the core of the whole debate was growing concern about the “jobless growth” South Africa has been experiencing and Stride said it was clear “we cannot carry on as we were. Last year we created only 12 000 jobs”.
Many suggested this low rate of job creation is a reflection of high real interest rates and have said a 2% cut in the bank rate would do a lot to stimulate investment and jobs.
Ramos admitted that perhaps high interest rates had done their job of bringing down inflation, but said there was no easy trade- off.
Lower interest rates could fuel inflation again while resulting in a surge of imports and further strains on the balance of payments. “It is a very tough call to make,” she said.
Stride said another approach would be to do away with the secondary tax on companies, the so-called dividend tax, to make South Africa more competitive for foreign investors.
This tax had resulted in companies issuing shares instead of dividends and he suggested, not altogether flippantly, cash-flush companies that sat on their cash instead of investing it or declaring dividends should be subject to a profit tax.
He also suggested that the Companies Act could be amended to force companies to publish each year full details of how much they were exporting and how many jobs they had created.