The minister mentioned proposed special economic zones (SEZs) without saying what would be special about them.   In Mauritius and China, for example, they drove spectacular growth while we wasted billions on failed industrial development zones.   The department seems to think renaming them will turn failure into success.   It explained at a special workshop that our SEZs will not be “offshore” (no tax holidays, labour law relief, etc).   In other words, they will fail.

Leon Louw, the executive director of the Free Market Foundation, bemoans the growth of government consumption to 38% of gross domestic product (GDP).   Read his latest article Missed opportunities abound as state consumption grows again first published in Business Day on 28 February 2013.

Random extracts from the article

THE bad news is that South Africans will start working for themselves instead of the government two days later this year than last year.

Tax Freedom Day (TFD) is the day of the year corresponding to the proportion of wealth taken from citizens, so that 50% tax would make for a mid-year TFD.   We regressed slowly from April 15 in 1995 to April 26 in 2003, hit a low of May 14 in 2007 and then improved to April 26 in 2009.   This budget takes us to a record low of May 20.

By far the most important budget number is how much of the nation’s wealth the government consumes because prosperity worldwide coincides with small or contracting government, and poverty with big or growing government.   After a decade of constraint, government consumption grew from 32% of gross domestic product (2003) to a record 40% (2011), then improved to 37% (last year) and is now up again, at 38%.

The good news is that instead of widely predicted wealth or super profit taxes, we got reduced income tax rates and the deficit, which was higher than anticipated because of lower revenues, is up modestly.

Ministers of finance have missed so many opportunities to scrap exchange controls that commentators no longer notice.   Only 33 countries still have them.   Advanced countries scrapped them long ago and they now characterise backward countries.   Iceland reintroduced them as an emergency measure when its currency fell two-thirds in a few months.   As the Nestmann Group noted, exchange controls are a way for governments to “deal with economic crisis”.   That’s why the Nazis pioneered them and the apartheid regime emulated them.   Former Reserve Bank governor Chris Stals said they were a response to “economic sanctions, boycotts, disinvestment campaigns (and by) the 1994 elections, the Reserve Bank owned … zero foreign reserves”.   If we perpetuate the apartheid folly, foreign exchange officials should be sent home on full pay provided they stop working.

The budget proposes more spending on these [SEZs] despite failure by the department to grasp the concept.   Bankrupt governments, such as Greece, teach that there should be a different approach to budgeting.   Governments should not decide how much to spend, then try raising it; they should look at what spending the economy can support without being stifled, then budget accordingly, which in our case calls for substantial and politically painful cuts.

Infrastructure investment promised by the minister will help, provided it is on proven contributors to prosperity, such as road infrastructure, but will fail if more money is poured down the failed government enterprises drain when private operators are willing and able to take over.