As the National Treasury begins to tell the story of our fierce fiscal emergency, the ANC is trying hard not to hear. The governing party hierarchy called in finance minister Enoch Godongwana and his team to explain to them why he has been warning suddenly of an “unprecedented” financial crisis, cutting projects, stopping hiring, stopping parties. I mean, WTF?
The ANC’s allies, union umbrella Cosatu and the SACP, attended. ANC secretary-general Fikile Mbalula was there, along with deputy president Paul Mashatile and ANC chair Gwede Mantashe.
It all stems from a warning a month ago that the state, the government, is running out of money. It isn’t collecting the revenues it expected to collect in 2023. Taxes are down because, duh, there are fewer people working, it is becoming alarmingly more expensive for the sovereign to borrow and the economy isn’t growing.
The Treasury first presented its scary new position to the cabinet at Spier wine estate near Stellenbosch on September 15, listing more than 100 programmes that could be cut to help the government hold the fiscal line it has promised international lenders.
The equation is politically fraught. Whatever is cut it can’t be the social relief of distress (SRD) grant, the R350-a-week President Cyril Ramaphosa found (thanks to high commodity prices) for the extremely poor during the pandemic. So to keep the grant, or even raise it, something has to give.
At Spier the Treasury raised the possibility of a VAT increase from 15% to 16% or 17%, but warned this would have a negative effect on inequality. I suspect they meant equality. Or the SRD could be extended, but that would require heavy trade-offs. The list of cuttable spending programmes it flashed up onto a screen would have had ministers gasping.
But as Godongwana told a conference yesterday, “Our public finances are currently in a difficult position, one that is increasing in complexity and uncertainty. The short-term risks to the local and global economy that we predicted in the February budget have now materialised. Government has collected much lower-than-expected tax revenue.”
And the predictions back in February? Here’s Godongwana in his budget speech: “We are bringing the fiscal deficit down without resorting to tax increases or further cuts in the social wage and infrastructure. A primary fiscal surplus will be achieved in the current financial year, and this will be maintained over the medium term. This is a critical policy stance.”
That “critical” primary fiscal surplus means the budget is in surplus before interest payments on debt. He cannot break that promise. “There are risks to the fiscal outlook,” he said then. “These include a worsening of the economic outlook, a further weakening of the finances of state-owned companies, and an unaffordable public-service wage agreement. If these risks materialise they will require us to make difficult budgeting trade-offs.”
Time for those trade-offs has clearly arrived. Cabinet ministers, including the people who summoned Godongwana to the meeting on Monday, pay little attention to the messaging in a budget, and they have had little need to in the past. The Treasury is widely seen by dimmer ministers as a mere nuisance. This is different: Cut. Your. Programmes.
There’s an election soon and without drastic savings now Godongwana will have to produce a truly foul budget in February. Nothing will stop it, not a rival to the dollar nor any of the many foolish policies of the governing party. They have brought this on themselves.
As it is, all hope that this crisis, as the Treasury keeps promising swivel-eyed ministers, will only last until the end of the financial year may be quite wrong. That scenario assumes Eskom gets on top of load-shedding and Transnet is able to get its logistics right. With a patently overwhelmed management in place at Transnet that seems most unlikely, whatever help the private sector is able to provide.
Just to illustrate the levels of insanity at the actual cabinet table, a draft of the National State Enterprises Bill has just been gazetted for comment. It provides for the creation of a state-owned holding company, the State Asset Management (SAM) SOC, to manage all state-owned companies. The idea is that the department of public enterprises will be killed off after the election and the companies will “graduate” to the SAM and answer to a board appointed to the holding company by the president.
Which may even sound almost plausible until you find out that what’s not gazetted is the fact that only profitable state-owned companies will be able to join the SAM. The Treasury told Scopa this last week. The rest will be — we are left to understand, in the absence of a green paper explaining the draft bill — with the departments until they’re ship-shape. That’s to satisfy the ANC, which wants state-owned enterprises “returned” to their departments and ministers, while Ramaphosa and a few others want them in a holding company.
So, Eskom to the department of mineral resources & energy, and Transnet to transport. It is hard to imagine anything more certain, that an Eskom run by Mantashe will collapse, both financially and physically. But it’s what the ANC seems to want.
• Bruce is a former editor of Business Day and the Financial Mail.
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