The National Treasury’s presentation at cabinet’s special meeting at the beginning of September lays out starkly the expenditure choices the government and the nation face as we go into the 2024 general elections.
A statement issued after the cabinet meeting on September 13 indicated that not only will finance minister Enoch Godongwana be issuing guidelines around the cost containment measures to be implemented, but the president and deputy president will be meeting individual ministers to discuss fiscal management.
These measures will give us a sense of the medium-term budget policy statement (MTBPS) on November 1, indicating what the upcoming 2024/25 budget will look like as well as what the three-year medium-term expenditure framework will contain.
Thus the Spier memo, as it has become known, could well become one of the most consequential documents shaping the kind of government we will see for the next decade as well as our responses to dragging the country onto a growth path.
While the government has shown maturity and a grasp of the critical moment we face, I struggle to get a sense of what the opposition’s views of the Treasury proposals are.
The Treasury document deals with some of the most critical issues of the day. Our middle-class sensibilities may deem the R350 social relief of distress (SRD) grant as paltry but, with 8-million beneficiaries, it has proved to make a significant difference to the poorest parts of our population.
Some 18-million South Africans have debt amounting to an average of R16,000 per head. The nutritional, physical and mental health implications of such a situation underline the fragile base of our nation and the ongoing possibility of uprisings on the scale of July 2021. It would also make any responsible government think long and hard before it ends such a programme.
The various scenarios the Treasury spelt out show there is no silver bullet for the government to maintain such a commitment, and it needs to make some tough decisions. One of them is raising revenue through changes to the tax regime. Since news of the Treasury’s briefing broke, warnings have been issued to avoid that route.
Business Day readers are surely familiar with the figures: only 19% of South Africans pay 87% of the total personal income tax take, while less than 1% (about 770 companies) contribute 62% of total corporate income taxes.
Therefore, deeper cuts to expenditure while maintaining the critically needed social grants forms a major part of the government’s response. The former includes the proposed reprioritisation (which could mean canning) of some expenditure, ranging from capital programmes for improving the transport system to the peacekeeping mission to the Democratic Republic of Congo.
There are also a significant number of line items under “unfunded budget submissions”, including rejuvenating the defence force and the presidential employment intervention, which may need to be sacrificed.
The headlines have been focused on what is referred to as the “reconfiguration of the state”, which sets out a number of steps including the merging of some departments and the shutting down of a number of agencies and government functions.
A key question is whether an across-the-board cut is the way to go, or whether the state should engage in a more detailed and strategic review. We need to ask ourselves what kind of state we want to meet the needs of future generations, and whether that state can be afforded.
The Treasury document suggests encouraging early retirement and voluntary severance packages and spells out detailed mechanisms for how to achieve this. From past experience, such packages usually mean losing the most talented and experienced bureaucrats to the market.
Other critically important suggestions include regaining fiscal credibility through imposing fiscal rules, including anchors such as setting a debt ceiling and primary balance target, and stronger budget process rules such as life-cycle costing for capital projects, preferably within legislation.
While the government acts on some of these proposals it will have to help answer yet another key question of our time: where will economic growth come from?
• Abba Omar is director of operations at the Mapungubwe Institute.
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