JAUNDICED EYE
The political clouds have lifted. It’s all broad uplands and sunny skies in South Africa at present.
The recent gales of 2021 — insurrection, violence and arson — are forgotten. The lassitude that left President Cyril Ramaphosa’a administration becalmed for four years is confidently predicted to be lifting.
Last week, President Cyril Ramaphosa’s annual State of the Nation Address (SONA) was widely welcomed by prognosticators as a reassuring commitment to a private-sector driven economy, rather than the state-driven “developmental” model that the African National Congress has been trying to implement with scant success. This week, Finance Minister Enoch Godongwana’s maiden budget was hailed by many as the first tangible puff of wind in Ramaphosa’s sails to power him out of the doldrums.
And what’s not to like? The minister had a revenue windfall of almost R200bn, of which R182bn was a taxation benefit from the commodity price boom. Of course, it could have been at least double that amount had the government not choked the mining sector to within an inch of its life over the past couple of decades with an ANC-fashioned noose of regulatory uncertainty, electricity uncertainty, labour militancy, and community lawlessness.
But let’s not be churlish, at least the bonanza is being carefully spent. Any increase in the public service wage bill will be held below inflation and 45% of the windfall will be used to pay down debt, with no further debt creation on the cards.
The Covid-relief grant of R350 is extended for another year but there was no concession on a Basic Income Grant (BIG), which had been lobbied for hard by the ANC’s alliance partners and a large number of civil society organisations. Instead, there was an unexpected, small cut to the corporate tax rate, as well as an inflation-linked adjustment in tax brackets for individual taxpayers.
Godongwana promised “tough love” for the profligate and largely bankrupt state-owned entities (SOEs). In future, they should be self-sustaining and there would be no more bailouts.
That is, except for Eskom (R88bn cash and a R25bn government-guaranteed spending voucher), arms manufacturer Denel (R3bn) and SA Airways (R1.8bn). And the door was left open for SOEs that could show that they are “serious about cost containment”, to get future relief.
One of the more enthusiastic responses to the budget came from BizNews editor Alec Hogg, who is normally unsparing in his criticisms of the government. “SA has been battened down for so long that it’s easy for pundits to conclude Ramaphosa and Godongwana are fighting a lost cause.”
“But there are solid reasons for dismissing the cynics. After some extremely tough years … South Africa’s luck is indeed turning.”
Generally, however, unlike some of the adulation that greeted SONA, the response was muted. This was despite the budget having clear measurables and deliverables, unlike SONA, which coasted on a smile and a promise.
It’s the quantifiables that drive the lower-key reaction. Some economists venture that the growth forecasts and, therefore, revenue collection forecasts, are over-optimistic. There are also warnings, based on history, of a risk of higher permanent spending in terms of public service wages, welfare grants, and SOEs.
The consensus is articulated by Jeff Schultz, senior economist at BNP Paribas SA, who said that the budget should be “welcomed with cautious optimism”. A Business Day editorial was more jaded: it noted that the “blind luck” of high commodity prices gifted the Treasury with substantial unforeseen revenue, but while Godongwana had used this “to create breathing room, this isn’t the budget that will extract SA from its quagmire”.
To assess the credibility of a budget, one must also look at what it omits. The budget is as revealing in what it left out, as in what it contained. There are some lacunae.
A small one is a murkiness around the R3.5bn for SAA that Trade Minister Pravin Gordhan was publicly demanding just days before the budget. This was not a new bailout, he insisted, but the balance of the R14bn that the government had previously agreed.
“While this might be announced in Wednesday’s budget, Gordhan, who has twice been finance minister, said he could not guarantee it because he no longer writes the budget,” reported Business Day. That transfer didn’t happen.
The budget states that in the 2020 Budget Review, R16.4bn was set aside to settle state-guaranteed debt and interest. “To date, government has paid R14.6bn of this amount, with the remaining R1.8bn to be paid in 2022/23.” This was in addition, Godongwana said, to the R10.5bn that the 2020 Medium Term Budget Policy Statement allocated to SAA in 2020/21 for its business rescue plan.
It would appear from these figures that Gordhan is being short-changed, in his view, by R1.7bn for SAA. It’s also a snub of Gordhan, who has for years successfully bullied and blustered to keep drip-feeding SAA, while promising that each infusion would be the last.
A far greater hole is the continued lack of clarity over a possible universal basic income grant (BIG). This is just one of the cans that Ramaphosa keeps kicking down the road but which he will have to eventually take a firm position on. While the extension of Covid relief for another year will cost R44bn, this is chicken feed in comparison to BIG, which would cost something between R100bn–R500bn annually.
To gauge the implications of BIG and other social services support, the key number to watch happens to be 46. That’s the percentage of the workforce, on the expanded definition, that is jobless. It coincidentally is also the percentage of the South African population receiving grant support. If the budget reduces the magic number, well and good. If that number increases, fiscal pressure will increase exponentially.
Unfortunately, the record shows that both unemployment and grants have advanced steadily under the ANC. There is no reason to expect that trend not to continue, unless we have faith in Ramaphosa’s new commitment to private-public partnerships to drive infrastructural spending, turn SOEs around, and start new businesses.
The other black hole lurking in the budget is the projected expenditure on health, which will this financial year increase to R259bn, up from R256bn in 2021/22, with the intention to stabilise at R257.5bn in 2024/25, with the winding down in allocations for Covid.
The missing phrase in the budget is “National Health Insurance”. Although the NHI Bill is currently at the public comment stage in Parliament and is the most cherished objective of Ramaphosa’s communist and union partners, it was not mentioned at all.
Here, as with BIG, the cost estimates vary substantially. The Institute of Race Relations prices it at around R700bn a year; Medical scheme operator Discovery reckons a precise R212bn a year. Discovery warns, “If taxation is used to increase state healthcare budget to this amount, additional 4.1% of GDP needs to be collected in taxes, [which is] unlikely to be feasible.”
With breath-taking insouciance, the NHI Bill doesn’t price the plan at all, although a 2017 White Paper projected that by the time of its intended 2025 launch, it would cost R256bn (in 2010 prices).
That figure is a total thumbsuck. But even using these suspect Treasury estimates, the budget should be planning on spending at least an extra R80bn per year on health in 2025, experts believe. Godongwana’s budget projection makes no such provision. Another Ramaphosa can sent clanking down a potholed street.
As with SONA last week, we should temper our expectations of what the budget signifies. At best, these are no more than the first signs that the Ramaphosa administration has a rough idea of what has to be done and that maybe it can’t do it alone. Now for the far more difficult part of actually implementing those plans.
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