Good morning. I’m Alec Hogg and this is the Rational Perspective.
Well, I spent yesterday in the lockup in Pretoria. I got up at 4am to make sure that I was there in time, and had a lot of time to assess, analyse, and absorb what was in the Budget Speech yesterday. No doubt, the nation is a little bit frazzled by the fact that after the oil price decline, we’re now going to see another 80 cents/litre increase because Government needs money. It’s a huge jump in what we will be paying as citizens – R17bn extra on that side. If you happen to be one of those unfortunates (in a sense) who earn more than R37k/month, you too are going to be paying more tax next year. However, the elephant in the room has nothing to do with those headlines.
It’s something that’s been creeping up on us: the debt-to-GDP ratio in South Africa has doubled since 2008. We were at 22 percent then. Three years ago, Pravin Gordhan said we would hit a maximum of 38 percent. In the Budget yesterday, we were told that it’s now gone up to 44 percent – not quite in the proportion of Japan or Italy, but worrying. Bringing up Italy is probably the best idea of knowing why this elephant needs to be dealt with. Twenty years ago, Italy embarked on its own social experiment. It had inflexible labour legislation, helping people who were workers rather than employers and its economic growth has flat-lined ever since. The debt-to-GDP ratio there has gone way over 100 percent, as the debt trebled during that period. Now, Italy has to dismantle those inflexible labour legislation/rules that have caused it so much pain.
In South Africa, we still talk about protecting workers’ rights and not worrying too much about what’s going on with those are the engine of the economy – the companies. Perhaps it’s time to change that approach.
This is Alec Hogg with The Rational Perspective.
