Finance minister Tito Mboweni’s budget speech was full of biblical quotes, which was oddly appropriate.
He quoted the biblical passage in Zechariah 8: “For the seed shall be prosperous; the vine shall give her fruit, and the ground shall give her increase, and the heavens shall be given their due, and I will cause the remnant of this people to possess all these things”.
The passage is positive and upbeat. But the true essence of the budget is reflected in Galatians 6:7: “Do not be deceived: God cannot be mocked. A man reaps what he sows.”
Over the past decade, the government’s finances have gradually unwound, through poor policy choices, poor implementation, festering corruption and disappointing economic growth. It’s been a sobering and grinding process.
The process of decline was insidious because government’s comparatively strong position a decade ago allowed it to argue that loosening the reins was simply a part of “leaning against the wind”. In other words using some of the accumulate fiscal space to deal with the great recession.
The “leaning against the wind” process was allied to the larger philosophy of the “developmental state”, where the state “leads” development, confident, haughty and disdainful of all others.
If ever you wanted a riposte to the notion of an arrogant state, the 2019 budget is definitively it. Much of the budget concerned SA’s greatest current economic and social threat, the effective bankruptcy of state electricity producer Eskom. But it didn’t stop there. The stick has come out.
In his prebudget press conference, Mboweni more than once said “they’ve got to break some bones first” in reference to government’s fleet of state-owned disasters. And what he flippantly posted on Twitter some time ago is now part of official policy. “Isn’t it about time the country asks the question: do we still need these enterprises?”
And if you look at government finances, you can see why.
The medium-term economic outlook has been revised down. The GDP growth forecast to reach 1.5% in 2019 as opposed to the 1.7% estimated just a few months ago.
Government for the first time marginally breaches its expenditure ceiling. The consolidated budget deficit figure, the key difference between income and expenditure, rises from 3.6% at budget time to 4.2% now and rising further to 4.5% in 2019/2020.
Gross government debt rises continually for the next three years, from 55.6% in the current year to 58.9% of GDP in 2021/2022. These changes look small but what it means is that gross debt will now rise to more than R3-trillion this year and almost R3.5-trillion in 2021/22.
The budget documents also provided a much more detailed picture of government’s contingent liabilities and, almost needless to say, they look dire. All of the numbers are of a piece. With income slowing as a result of a slowing economy and poorer collection, tax almost by definition has to go up.
Listen to further analysis of the budget here:
This year, what Mboweni has done is only partially compensate for bracket-creep — the tendency for inflation-linked salary increases to put taxpayers in a higher tax bracket. Doing so generates an extra R15bn, including the introduction of a carbon tax and small increases in excise on tobacco and alcohol. And it means government’s approach to its staffing problem has had to ratchet up a notch in aggression, hence the early retirement offer for old public servants, the details of which will be published over the next few weeks.
Mboweni lifted a corner on government thinking when he was asked whether the budget would avoid a downgrade by rating agency Moody’s, the only one that still rates SA’s debt investment grade.
Mboweni said Treasury officials had discussed the budget with rating agencies, and they had been very, very hard discussions.
“We almost felt that we were dammed if we did and dammed if we didn’t,” he said. But he hoped government would be given credit for attacking the problems head on.
And that means Eskom. The dimensions of the problem are gradually becoming clearer. It’s not just corruption. It’s not just the ballooning costs. Now there is something else; the Kusile and Medupi power stations are just not producing enough electricity.
In the budget documents, Mboweni said emphatically that government was not taking over Eskom’s debt but would provide the utility with fiscal support, at a rate of R23bn a year for the next three years. Now hold your breath. Government officials in the background said this would, in fact, continue for a decade, and would therefore total R150bn.
Behind the scenes, some of SA’s top bankers have been trying to work out the dimensions of the problem. The much lower levels of production, aggressively estimated at about half the nameplate capacity, in effect halves their notional value on Eskom’s balance sheet.
It's principally that decline that needs support. If you thought the Medupi and Kusile projects were among the worst executed government projects in the history of infrastructure in SA, you would be wrong. They are the worst. So much for the state “leading” infrastructure development.
The calamity has also facilitated a new approach: this time government is not going to simply change members of the board; it will be appointing a “reconfiguration officer” to actually sit inside the organisation and represent government and plan the changes.
The uncomfortable term “reconfiguration officer” was chosen because, as Mboweni explained, after legal advice it was decided that the person could not be called a “restructuring officer... But they are the same thing”.
And this new approach does not apply only to Eskom but also the other two big bugbears, SA Airways and the SABC. You look at all of this and it’s hard not to sympathise with Mboweni. As the crunch of the budget reveals itself, it's obvious he has been handed a horrendous hospital pass by the circumstances.
It's widely assumed that he is a short-term stand-in. But it turns out, not so much. Asked very directly whether he would be staying after the election, Mboweni prevaricated about not knowing the outcome, but then said: “I told deputy president DD Mabuza ‘I will not desert you so easily'”. That's the clearest indication yet that he will stay on if called on to do so.
As Timothy 1:7 reflects, “for God has not given us a spirit of fear and timidity but of power, love, and self-discipline”.
• Cohen is Business Day senior editor.
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