Hon House Chairperson and hon Minister, previous speakers have indicated that the South African economy has demonstrated resilience in the face of strong global headwinds. We therefore welcome the commitment by the Finance Minister to slam the brakes on state spending and for there to be no additional allocations to departments in the Medium-Term Budget Policy Statement. This is also the first time since 1998 that this has happened. It is quite amazing that we could stop the state's spending in this regard.
Important primary obstacles to foster more inclusive growth are, however, rooted in our domestic economy. We find striking activity in the mining and other sectors, low electricity reserve margins, high and unaffordable electricity prices, infrastructure bottlenecks, and weak business confidence which are serious obstacles to a positive domestic economic outlook.
The impact of administered prices on South Africa's economic outlook is devastating. The South African economy is heading for stagflation, which is the triplet of high inflation, high unemployment and slow growth even as interest rates drop. It is indeed problematic that administered prices of electricity in particular, Minister, are effectively killing South Africa's mining and manufacturing capacity, causing us to forfeit the export opportunities that a weak currency offers.
A triple inflation-price trajectory by Eskom scares off the large businesses, and it is unaffordable to small businesses and, of course, to ordinary consumers. Eskom is using consumers to fund its capital expansion programme. Eskom abuses the formula for administered prices, and I will tell you why, Minister. It includes the government's expected return on assets stipulated now at 8,16%. Previously it was 0,9%. It is considered by many South Africans to be a double taxation as this is not ring-fenced for the electricity industry; it goes back to the fiscus. Perhaps we should discuss this and see if the government can stand back on the expected 8,16%.
This is a ludicrous return for government to expect, as it is not a shareholder in the real sense of the word. We need to know that Eskom is not operating under market conditions and requires perpetual guarantees from government. Eskom's inclusion also in the cost of replacement of assets is highly problematic, and it inflates the Eskom model in terms of pricing. Re-evaluated assets of Eskom have increased from R1 billion to R700 billion. This makes a huge difference in terms of the calculation to get to the pricing, and we would like to ask Eskom to reconsider their application and the National Energy Regulator of SA, Nersa, to reject this application from Eskom.
The DA would like to urge Nersa, therefore, seriously to reject the Eskom application of electricity increases of 16% yearly for the next five years. It is unaffordable for consumers and businesses and very negative for economic growth.
Regarding cost-reflective tariffs - and we all agree with cost-reflective tariffs; they need to be there - it is how they are built into the formula that is the problem, and this inflates the Eskom pricing formula.
What do we propose, Minister? We propose that the shareholder, government, should accept a smaller return on assets, and Eskom's cost of replacement of asset valuation needs to be revised with regard to Eskom's revenue requirement. The revenue requirement in this regard is 34% after total package in terms of the pricing. It needs serious reconsideration. Thank you very much, hon Chairperson. [Time expired.] [Applause.]