What happens when everybody owes everybody and no-one can pay? Usually a crash.
That is what happened in 2008 in the global financial crisis, when subprime mortages were packaged, insured, sold and resold. The whole system came down when the defaults began and people at the bottom could not pay their mortgages.
It is also what is happening in the government right now. Municipalities owe Eskom R25bn. That amount is growing by almost R1bn a month. Households, mostly in Soweto, owe Eskom R18m. Government departments owe Eskom R20bn. They also owe various cities across the country for rates and taxes.
Road users owe Sanral R23bn. The government owes road users R340bn in claims through the Road Accident Fund. These are not hypothetical claims but real liabilities that already exist and must be paid. By 2022/2023 it is estimated that these liabilities will reach R605bn.
The government also owes users of public hospitals about R80bn in medico-legal claims. Health departments survive by paying their bills late. The worst offenders — Gauteng and the Eastern Cape — routinely run out of money four to six months before the end of the financial year and from then on defer payments until the next year’s funding comes in on April 1.
The Passenger Rail Agency of SA (Prasa) defaulted on its R250m Eskom bill last week and would have had the power to commuter train lines cut had Western Cape premier Alan Winde not stepped in to ask President Cyril Ramaphosa to ask Eskom to delay the cuts.
State-owned enterprises are slow payers across the board, not so much because of administrative inefficiency but because of perpetual cash flow problems. A month or two ago, SA Express was grounded for failing to pay Airports Company SA (Acsa). Fortunately, SA Express was bailed out by the Treasury, but everyone knows this is only until next time. Water boards are also sinking in debt. Municipalities owe them R14.9bn and only 41% of households are paying their water bills.
At the apex of it all is Eskom, with its R450bn in debt it cannot service. While the Treasury has bailed Eskom out in 2019 with R46bn to meet these obligations, the fact is that this is not enough to keep the Eskom show on the road. It has not yet raised all the funding it needs to get through 2019/2020. Unless it can defer spending and sell noncore assets before the end of March, it will have to knock on the Treasury door again.
So what is the significance of this payments crisis? At an economy-wide level (other than the case of Eskom), payments imbalances in the state system are not a systemic threat. But, because the state is such a large purchaser of goods and services, these pressures will feed through into the private sector as they are passed on to private-sector suppliers. While some may be able to sustain themselves, others — especially smaller ones — won’t. The 30-day payment rule, so often spoken of as an administrative failing, is actually a fiscal one. Government officials must decide who will get paid and who won’t.
Last week, the Public Service Commission reported to parliament’s appropriation committee that it had tracked the worst violators of the 30-day payment rule. The top offender was the department of water and sanitation, which had R851.4m invoices over the 30-day rule. When some public officials are put in a position where they must choose who to pay, said deputy director-general Irene Mathenjwa, they will pay whoever is willing to pay a bribe.
The effect of this fiscal pressure on the functioning of the state is clear to see. Vacancies are left unfilled, maintenance and capital budgets are diverted, and salaries are funded with resources intended for capital. Hospitals run out of linen and schools run out of furniture. Both public capabilities and the value of public assets are eroded.
Over the past seven years, since the Treasury put an expenditure ceiling in place, the approach has been to leave it up to government departments to make do with what they have. This is no longer cutting it, as all the slack in the system has now been taken up.
When everyone owes everyone and no-one can pay, it means that as a country we are living beyond our means. This is not a temporary problem brought about by the overhang of state capture. The corruption and abuse of state resources over the past decade made matters worse, but are not the cause of the problem.
A restructuring of government expenditure and a realistic evaluation of its ability to raise revenue should be done if SA is to reset its finances and get back on track.
• Paton is writer-at-large.
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