Media release: Minister Tito Mboweni needs to go further than mere zero-based budgeting

Media release
23 June 2020

Minister of Finance Tito Mboweni has the opportunity to draft an emergency budget that puts citizens first by introducing austerity measures.

Government must start laying the philosophical foundation for zero-based budgeting, which entails blanket justifications for each government department's expenditure every fiscal year, starting from R0, and requiring all expenditures to be justified to National Treasury and, by extension, to taxpayers.

A fiscal policy tool Minister Mboweni should take note of is zero-deficit budgeting. It forces government to live within its means by trying to cover its expenditures through tax revenue alone instead of more debt, except as an extreme last resort.

It is the time for Minister Mboweni to lay the groundwork for the implementation of a fiscal policy framework that combines zero-based and zero-deficit budgeting. Although it cannot be implemented immediately, it is essential for Minister Mboweni to lay the foundation tomorrow for its future implementation by cutting the bloated budgets of non-essential departments, functions and SOEs, as well as redirecting funds to departments where they can be used to develop human capital and prosperity.

This is the ideal time for Minister Mboweni to announce the long overdue liquidation of such hopelessly failed SOEs as SAA, SAX and Denel.

Cutting wasteful expenditure now is key if government envisages successful implementation of zero-based budgeting. Cutbacks in unnecessary spending now would send the message that the government is serious about eliminating waste and reducing the deficit. Only significant cuts will convince increasingly sceptical citizens and investors.

Governments do not pay for anything. Taxpayers do. South Africans are forced to finance debt and interest, specifically future generations – our youth are forced pay our bills tomorrow.

Unless Minister Mboweni cuts spending and borrowing drastically, public debt is estimated to reach 80% of GDP by year-end, 91% by 2022, and over 100% of GDP by 2025.

It is important for Minister Mboweni to start decreasing the deficit with a view to eliminating it. Debt servicing costs alone were 11.7% of the February budget, and are likely to increase to unsustainable levels if not arrested.

For government to be effective and efficient, monetary and fiscal authorities must work in tandem. Minister Mboweni should send a clear message to the Reserve Bank that it is neither expected to monetise government debt nor implement extensive expansionary monetary policy, and that the government will respect its independence by not pressuring it to assist government in getting rid of its debt.

Minister Mboweni should also take drastic action regarding bloated public sector employment by placing a moratorium on salary and wage increases above the annual inflation rate and give effect to his promise of cutting the public sector wage bill by R160 billion. Minister Mboweni should resist the pressure of unions to hold government, citizens and taxpayers hostage.

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