THERE will be little room in the national budget for extra stimulus to the economy.
Economic data published by Statistics South Africa this week show the economy is still struggling. Although the official, narrow unemployment rate decreased slightly to 24.9% in the fourth quarter of last year, 68,000 less people had a job in the fourth quarter than in the third.
Manufacturing production grew by only 2% year on year in December, down from November's revised 3.7% growth. Month-on-month production fell by 2.2% in December.
Lullu Krugel, economist at KPMG, said there is very little money to help stimulate the economy. The budget deficit has increased quickly over the last five years and is budgeted to reach 4.8% of gross domestic product (GDP) in this financial year.
Raising taxes to increase revenue would be problematic, Ms Krugel said.
"Looking at higher company taxes, businesses are struggling and we [South Africa] have to stay competitive. Higher VAT will not be a politically correct path because it is a regressive tax. Personal income tax's share of total revenue has grown dramatically, but there is no more growth in the number of taxpayers."
Nazrien Kader, head of tax at Deloitte, said two weeks ago government will have to examine other tax revenue sources as increased tax rates in the current environment will not be popular. She said the focus is likely to shift to decreasing the rate on tax avoidance practices.
However, Krugel said there is little left to do in this regard as government and the South African Revenue Service have done a lot to make sure they close all the possible loopholes.
"The problem is that the tax base is simply not growing," she said.
"There is no growth in job opportunities to make the pool bigger. Job creation is needed, and such jobs that help grow the taxpayer pool. Any action around revenue collection should be aimed at growing the revenue pool rather than taxing the current pool more."
Lumkile Mondi, chief economist at the Industrial Development Corporation, said options for economic stimulus from the budget are extremely limited. He said a sector like manufacturing has unique challenges.
These include the rising cost of electricity, the cost of labour, which is expected to rise following mining wage deals and the new dispensation in agriculture, and a lack of international markets for South African products.
The government must be serious about addressing these challenges, but it should not come from the budget, he said.
"It should come from electricity costs, where the government has an influence as the majority shareholder of Eskom. If the government is serious [about jobs] the first area to target is to make power cheaper for manufacturers so they can compete and create jobs, not through the budget," he said.
The business confidence index of the South African Chamber of Commerce and Industry (Sacci) climbed to 94 last month, the second month of growth. Sacci said that while this might suggest stronger recovery for the index this year, a serious commitment by government and labour towards economic improvement is key to helping the private sector create growth and employment.
However, Sacci's CEO Neren Rau cautioned that this does not just mean more money should be thrown at South Africa's economic problems.
"There is an over-emphasis on money. Certainly, an injection of funding by business and government into the economy is required, but that is not the silver bullet.
"We have to create an environment to allow investment into the economy and statements about mining companies 'blackmailing' [the government] are undermining that. The right strategies need to be in place, and only then you put the money in."
At a meeting between the cabinet and business on Sunday last week, the government again touched on the issue of the "alleged" R5bn on the balance sheets of South African businesses and asked what it will take for businesses to start investing this in the economy.
Mr Rau said, without the necessary strategies in place, the risk is that the money will simply disappear into a pit.
"Look at the areas in the public sector where a lot of money has been invested, but with very little meaningful outcome or results," he said, mentioning the example of education.
"The private sector has less capacity to do that. We have to answer [to shareholders] for the money we invest."
Mr Rau hopes President Jacob Zuma's state of the nation address on Thursday will acknowledge the importance of a partnership between government and business.
Goolam Ballim, chief economist at Standard Bank, said the state of the nation address and the budget, which he called "the mathematics of the state of the nation address", can reveal government's intentions on the economy.
"The signals could be materially constructive."
Mr Ballim said the African National Congress's (ANC's) recommitment to the youth wage subsidy is significant.
"Ideologically it jars with what Cosatu has preferred and it signals that the ANC is now willing to make decisions that expose those [divisions] within the tripartite alliance, but is willing to make decisions even at the cost of straining those relationships."
* This article was first published in Sunday Times: Business Times
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