SA facing downgrade: Roodt

The biggest single player in the economy was the state, which gathered revenue mostly through various taxes, Roodt told journalists in Johannesburg.

 

"They [government] spend more than what they get in, and that difference is called the fiscal deficit, and we usually express that as a percentage of the economy," he said.

 

"What happens is that the fiscal deficit is the amount of money they have borrowed."

 

For example, if a person went to the bank and borrowed money to build a new room for a new baby, that was capital expenditure, which was ok.

 

However, if that same person went to the bank, borrowed money and went to Mauritius to "make the baby" that was current expenditure, which was not good.

 

"This is what's happening in South Africa," Roodt said.

 

"The minister of finance borrows R200 billion long-term money, and of that R200bn, half of that is spent on a new room for the new baby, and the other half he uses to go to Mauritius."

 

It meant the minister was actually destroying capital, through doing the opposite of saving, and in the process his debt levels would keep rising.

 

"My suspicion is we are going to see a downgrade because of this... I'm very concerned about this because the economy is... weak," Roodt said.

 

The state was not obtaining the necessary revenue through taxes, which meant the deficit was bigger, and more money would need to be borrowed.

 

Roodt said companies were the biggest savers in South Africa, and while households were saving, it was not nearly enough, nor were enough households saving.

 

The government, meanwhile, was "actively destroying capital" in the region of R100bn annually, because it was not saving.

 

"Remember, savings is postponed consumption. I produce today but I don't consume everything," Roodt said.

 

"I postpone some of my consumption. This saving is the opposite where I consume today tomorrow's production, and that is what the minister of finance is doing."

 

Part of the reason why households were not saving enough was because the tax burden on potential savers was so high.

 

As a result, there was very little left over to save.

 

Roodt, responding to a question about government's proposed retirement reforms, said government was not consulting enough with people.

 

"It's not about the retirements only, look at the e-toll [consultation] process for example... I think government is ideologically a little bit confused because they don't know what they are," he said.

 

"They are not following a specific ideology. They're sort of all over the place, and you get all these different comments and contradictory statements by politicians and so on."