State should interfere less and spend less – Solidarity

Trade union Solidarity said in the run-up to Minister Pravin Gordhan’s budget speech that a significant recovery of the country’s economy will only be possible if government interference and government spending are curbed drastically. The trade union furthermore determined four directives for economic growth.

Gerhard van Onselen, economic researcher at the Solidarity Research Institute (SRI), expressed the hope that Minister Gordhan would emphasise in his budget speech that government will do fewer things and spend less on the things it will continue to do.

“We consider the continuation of centralisation and interference by the government to be the wrong medicine and that will hinder the economy even more. Our view is that real reforms of legislation and policy are necessary to reflect the principles of true economic freedom,” Van Onselen said.

Van Onselen pointed out that it will be extremely difficult for the state to stabilise debt at a level below 50% of the Gross Domestic Product, a psychologically important warning level.

“In conditions of weak economic growth, government will view higher tax rates as unavoidable to bring its debt under control, but owing to the discouraging effects of higher taxation on participants in the economy, this does not necessarily guarantee an increase in government revenue. Higher tax rates could indeed further weaken the capital base of the economy. The only sustainable solution is to actually decrease expenditure, which could, among other ways, be done by abolishing irrelevant government departments, state institutions and projects,” Van Onselen said.

Below is a summary of Solidarity’s directives that will stimulate economic growth:

  1. Free capital formation versus government expenditure. Productive people and businesses should be allowed to spend their savings according to their own judgement and expertise, rather than increasingly paying it to government in the form of tax for the latter to spend it as it deems fit.
  2. Real decrease in government expenditure. A real decrease in government expenditure is required – not only a lower rate at which government expenditure grows. To achieve this, irrelevant government departments and projects could be abolished.
  3. Revision of policy regarding government institutions. Institutions such as the SAA, and the SABC should be sold on the free market. This should be accompanied by a revision of the legal frameworks that favour these institutions and prohibit real competition in their fields.
  4. Policy reforms. Laws and policies on expropriation, land ownership, Black Economic Empowerment and Affirmative Action that are harmful to the economy should be reversed to boost the economy.
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