The NDP contains little detailed discussion on fiscal and monetary policy. There is also little or no discussion around the affordability of the initiatives suggested, and in particular what this would all mean for taxes.
The growth targets are extremely ambitious, but if achieved would transform the country. The NDP proposes creating 11 million jobs by 2030, which should reduce the unemployment rate to 14% by 2020 and to 6% by 2030. GDP per capita should increase from about 50,000 rand per person in 2010 to 110,000 rand in 2030 in constant prices.
Export targets
Export volume should grow by 6% a year to 2030 and the rate of savings should rise from 15% of GDP to 25%; the level of gross fixed capital formation should rise from 17% to 30%, with public sector gross fixed capital formation reaching 10% of GDP by 2030.
The NDP supports the idea of a tax subsidy to employers to reduce the initial cost of hiring young labour market entrants as well as the adoption of a more open immigration approach to expand supply of high-level skills. There is, fortunately, no naive belief that a weaker exchange rate is the panacea to South Africa’s economic success and the NPD points-out that “South Africa’s present economic capabilities do not allow greater control over the exchange rate, although reducing the volatility is a critical challenge that requires attention”.
South Africa’s retail sales in September rose 1.8% month-on-month, better than expected and up an impressive 8.3% year-on-year in real terms. It is possible that growth in unsecured credit may be providing some of the boost to retail activity. Most areas of spending recorded solid growth, with only food sales under pressure.
In contrast, spending on hardware, paint and glass had shown a very welcome improvement. Looking forward, the consumer’s disposable income is facing increasing strain. This is due to a range of cost/push factors that are systematically eroding the household sector’s discretionary spending power.
Household costs rising
These include higher energy costs, transport costs, food costs, education fees, medical service costs and water costs. Households cannot avoid these increases, as they relate to necessities or essential goods, forcing consumers to either cut back on non-essential purchases or take on additional debt. While the rate of growth in total consumer debt remains relatively subdued (mainly due to subdued mortgage finance), there has been a noticeable increase in the use of unsecured credit, suggesting that some consumers are starting to use short-term debt to offset the loss of discretionary spending power.
In addition, as mentioned above, the most recent labour market report was surprisingly strong, making a positive impact on consumer activity. Clearly, in isolation, the latest retail report would argue against a cut in interest rates, but will tend to boost the Q3 GDP reading.
