The 2009 MTBPS: Managing a fiscal calamity
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The 2009 MTBPS: Managing a fiscal calamity Jac Laubscher Group Economist: Sanlam Ltd. Parliament 3 November 2009. 2009/10 vs. 1992/93: back to square one. The fiscal deterioration in 2009 is extremely sharp. Tax revenue -6,2% vs. 2008/09

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The fiscal deterioration in 2009 is extremely sharp
The fiscal deterioration in 2009 is extremely sharp

  • Tax revenue -6,2% vs. 2008/09

  • in spite of the recession being relatively moderate

  • tax revenue has become more cyclical




The fiscal deterioration in 2009 is extremely sharp1
The fiscal deterioration in 2009 is extremely sharp

  • Tax revenue -6,2% vs. 2008/09

  • in spite of the recession being relatively moderate

  • tax revenue has become more cyclical

  • Expenditure +17,6% vs. 2008/09

  • above-budget increase in wage bill, with long-term consequences

  • adds 2% of GDP to debt over MTBPS term

  • Budget deficit 7,6% vs. 1% of GDP in 2008/09

  • Government debt from 22,6% to 29,2% of GDP (contingent liabilities to be added)

  • Increasing cost of debt will constrain discretionary spending


Bond yield vs debt gdp ratio
Bond yield vs. debt/GDP ratio

Debt/GDP

2012/13

Real bond yield


The medium term outlook for revenue
The medium-term outlook for revenue

  • Don’t over respond – we have time on our side

  • Macroeconomic assumptions are conservative, but global prospects are uncertain

  • Debt/GDP will continue rising beyond MTBPS

  • Tax burden too high to accommodate further increases (SA 32% vs. 18,2% average for middle income countries)



The medium term outlook for expenditure
The medium-term outlook for expenditure

  • Improvement is excruciatingly slow; expenditure/GDP remaining high

  • Expenditure/GDP needs to be reduced more aggressively (SA 30.1% vs. 18.6% average for middle income countries)

  • Expenditure cannot just be added, priorities need to be redefined

  • Pursuit of (non-contributing) welfare state unusual for stage of development; social protection equals 14% of consolidated expenditure

  • Greater efficiency and effectiveness in public expenditure is non-negotiable: compensation of employees equals 57% of current payments


Macro economic policy
Macro-economic policy

  • Inflation targeting

  • Responsibility remains with NT

  • Reasoned approach, acknowledging complexities

  • Discussion with SARB in line with flexible approach to IT

  • Commitment to low inflation remains

  • International debate about whether financial stability should be added as a monetary policy objective; about interest rates being too low, not too high



Macro economic policy1
Macro-economic policy

  • The value of the rand

  • Rand is overvalued

  • Intervention not the answer: too expensive

  • Competitiveness through greater productivity, not through depreciating currency

  • Try reducing volatility: encourage greater two-way trade through exchange control relaxation

  • Exchange rate volatility linked to excessive rand liquidity and volatility in commodity prices

  • Explore further options, e.g. commodity stabilisation fund, macro-hedging


Macro economic policy2
Macro-economic policy

  • Growth strategy

  • In need of a new, more labour absorbing growth strategy

  • A collection of comments rather than a comprehensive, cohesive strategy

  • A combination of ideas from the past and searching for new ideas

  • Macro-economic stability is foundational

  • The social democratic developmental state is a difficult model

  • First focus on getting the basics right, e.g. education

  • Government dis-saving is unwelcome turn

  • Reduce spending and taxes


Worrying trends
Worrying trends

  • Permanent increase in expenditure/GDP ratio

  • Pressure to increase tax burden

  • Increasing debt/GDP ratio and higher state debt cost

  • Upward pressure on real long-term interest rates

  • Reappearance of government dissaving

  • Lack of cohesive macroeconomic policy


Thank you!

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