Resolving to do more with less in 2015

With Christmas almost upon us, the thoughts of the nation are gradually being diverted to the goodwill and joy of the festive season.

Concerns about jobs and livelihoods can be temporarily put aside as festivities and bonuses take over. Then comes the new year, when the ritual of new year's resolutions kicks in. Here is the feeling of making a fresh start, at least in principle. These rituals play themselves out throughout most of the world, including South Africa.

Yet for South Africa, several harsh realities will re-emerge early in 2015.

"Doing more with less" will be a mantra for the nation, not just the fiscus, next year. Strategies for the budget in February will be finalised in the months ahead and Finance Minister Nhlanhla Nene will be unable to play Father Christmas. Cabinet members and the private sector should also make firm resolutions to promote a consistent and robust growth agenda next year if the National Development Plan is to succeed.

The forthcoming budget will have a particular significance for several reasons, not least because of the unfinished business arising from the medium-term budget policy statement, or "minibudget", presented last month. In it Nene dropped the one shoe of renewed fiscal discipline; the other one, on taxation, will drop in February. And "big ticket" spending items, such as Eskom and nuclear power, still need clarification. The effective roll-out of infrastructure spending has growth-enhancing and job-creating potential, but so far the experience of the Eskom saga in particular has been underwhelming, disruptive and too costly.

The minibudget confirmed the global and domestic red lights flashing in the economy. Although the international economic outlook is not helpful to South Africa, Nene has rightly emphasised that the bulk of the solutions must be found internally. He believes that a turning point has been reached in managing the South African economy, and the National Treasury intends to crack the whip on government spending. Fiscal policy must play its part if investor confidence is to be boosted and this country is to enjoy higher, job-rich growth. However, recent socioeconomic developments demonstrate that economic governance remains a complex matter, with tough policy choices ahead in 2015.

The budget is therefore not a place for scribblers, dreamers, ideologues and passionate advisers, all determined to remake the country overnight according to their own utopian prescriptions. Nene must instead apply the reality tests required to convey the message to key constituencies - including credit rating agencies - that he and his colleagues are successfully avoiding the "fiscal cliff". He needs to skilfully manage the remaining substantial revenue shortfall in February if his fiscal policy is to remain credible. With a limited tax base, and with expected economic growth rates of only 1.4% and 2.5% in 2014 and 2015, how does he sensibly finance the government's large share of a shrinking cake?

The usual suspects, such as personal taxes, corporate taxes and VAT, all carry risks, especially at this point in the business cycle. Yet, unless government spending can be reduced or reprioritised, we are looking at higher taxes, new taxes or more efficient tax collection. Juggling a few taxes with the help of the Davis Tax Committee is now inevitable, but initiating a negative "tax and spend" cycle will not be good for economic growth. The small tax base must be nurtured, not attacked.

Perceptions about the efficacy of government spending are also important, because public support for the tax system is necessary for its effective functioning. On social spending, the country does well by global standards but, overall, excessive and wasteful government spending is the elephant in the room.

To limit consumption spending and promote productive public investment, it is necessary to keep the rising public sector wage bill within affordable limits.

It remains to be seen whether the recent split between Cosatu and the National Union of Metalworkers of South Africa will help or hinder reaching a realistic outcome in public sector wage negotiations.

In 2015, fiscal consolidation will remain a necessary condition, but not a sufficient one, for what South Africa urgently needs. Local and overseas economic analyses repeatedly show that the basic challenge is this country's inability to grow its economy and create the extra space needed to tackle unemployment, poverty and inequality. Our trajectory ultimately rests on service delivery, policy certainty and economic growth. These are the key constraints that must be overcome if we are to lay a firm basis next year for our economy to become bigger, stronger and better.

Parsons is a professor at the North-West University Business School and former deputy CEO of Business Unity South Africa