Deputy finance minister warns of wage freeze, 'looming fiscal crisis'
With government borrowing more than R1.2bn a week to meet expenses, deputy minister of finance David Masondo has proposed a state wage freeze to curb costs.
"We also have to look at a wage-freeze starting with us public office bearers at all levels of the state if we are to seriously tackle our looming fiscal crisis," Masondo said in an address to fund managers and other investors earlier in the week. Compensation now accounts for more than 35% of SA's consolidated public spending.
"Our tax revenue is very low mainly due to low economic growth; and the institutional challenges at SARS associated with what is now known as state capture have affected revenue collection.
"Raising taxes in the context of low economic growth is not an option. Growing the economy is the only option in order to build a broader economic base for revenue generation."
Instead of borrowings being used to "deliver a greater return to society," the deputy minister said much of the capital raised was going to state-owned entities.
"Currently a significant part of our expenditure goes to the wage bill and bailouts of our state-owned companies, with Eskom being one of the biggest recipients of government recapitalisation. These bailouts have become unaffordable."
The struggling state-opened power utility been granted a R128bn three-year lifeline to keep operating, while its total debt levels have risen to R450bn, larger than the nominal GDP of Zambia.
Deputy Minister Dr David Masondo @DrDavidMasondo tonight speaking at the Private Investors for Africa event says: "Realizing economic growth will require us to build growth coalitions and alliances with labour, business, government and civil society." pic.twitter.com/MauZ1SLmv4— National Treasury (@TreasuryRSA) October 7, 2019
While Masondo did not specifically refer to the term prescribed assets – a proposed policy that would compel pension funds to invest a portion of their funds in bonds issued by government and state-owned enterprises – he spoke about "unleashing" the full potential of pension fund money.
"Growing the economy will require the increase of both foreign and domestic financial capital," said Masondo. "At this point, let me be clear about our views. Firstly, from a finance ministry perspective, the savings of workers must be protected."
He said government can "never compel asset managers to invest their clients’ money in unsound or poor-return projects".
"But let us not forget that the size of long-term fund managers such as pension funds alone is a source of enormous power and influence in driving economic growth and reform.
"They have the ability to secure longer-term returns by insisting on high standards of delivery, governance, and social responsibility. We need to ask ourselves that: what prevents the full potential of these instruments from being unleashed on the economic potential before us?"