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South Africa must overcome challenge of cash-hungry state

Expect tax hikes in South Africa to feed the government’s addiction after the finance minister’s Supplementary Budget, says expert

Maarten Ackerman, chief economist and advisory partner at the specialist financial services company Citadel, is arguing that the government of South Africa has an addiction that is being funded by the country’s taxpayers.

Ackerman recalled how, during the three-month lockdown period to curb the spread of the novel coronavirus disease in South Africa, the country banned the sale of cigarettes.

The ban was effected by the Minister of Co-operative Governance and Traditional Affairs, Nkosazana Dlamini-Zuma, partly in the hope that people addicted to smoking would quit. A Pretoria high court on Friday struck out an attempt to lift the ban.

“The government has an addiction of its own: overspending,” Ackerman said. “And it needs to curb this habit, and fast, if we are ever to see a balanced budget.”

Spending habits

According to Ackerman, Finance Minister Tito Mboweni presented a very bleak Supplementary Budget to Parliament on Wednesday (24 June) but this was expected. The Finance Minister – again – also said all the right things.

Mboweni described the public finances as “dangerously overstretched”. The Supplementary Budget offered no news on the government’s plans to address spending and public sector debt in cash-hungry state institutions such as Eskom, the national power provider, and the national airline, South African Airways.

But Ackerman asks if the South African government will be able to lose its spending habits, especially now that revenue is drying up fast.

The economy is expected to contract by 7.2% in 2020. Although this represents its worst performance in 90 years, it is roughly in line with the market’s expectations.

Economic growth is likely to return next year, experts say, with 2.6% growth in 2021 and 1.5% in 2022. These are realistic forecasts but still too weak to address many structural issues, Ackerman said.

Prince Moses

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