There are moments in politics when the mask slips, the veil lifts, and the cold, hard arithmetic of economic reality becomes undeniable. This week’s national budget is shaping up to be one of those moments. The government of national unity (GNU), this fragile, awkward marriage of convenience, is about to face its first real stress test that will reveal whether it stands for anything at all.
Finance minister Enoch Godongwana has a helluva job. A R300bn shortfall, a debt burden creeping past R6-trillion, and the unenviable task of deciding which sacred cow gets the knife first: taxpayers, state-owned enterprises or social grants. The whispers of VAT increases, higher corporate tax and a potential wealth tax suggest the answer may be “all of the above”.
Of course, none of this is new. SA has been staggering from one fiscal crisis to the next since Trevor Manuel left office, always managing to pull off just enough last-minute acrobatics to avoid catastrophe. But this time there’s no commodity boom to paper over the cracks, no golden parachute from the Reserve Bank, and no more gold reserves left to plunder. The so-called fiscal consolidation plan may be less a serious reform effort than a desperate attempt to keep up appearances before the whole house of cards comes crashing down.
Contrast this with Argentina under Javier Milei. Faced with an economic catastrophe far worse than SA’s, a 211% inflation rate, a wrecked currency and the sort of debt-to-GDP ratio that gives IMF officials nightmares, Milei has done what few populists dare. He has slashed public spending with almost gleeful abandon. Ministries were axed, subsidies gutted and public servants sent packing.
The results? Inflation is falling, Argentina has recorded its first budget surplus in nearly two decades, and foreign investors are tentatively returning, drawn by Milei’s Large Investment Incentive Regime (RIGI by its Spanish initials) and his willingness to bulldoze the Peronist economic model. But it has come at a savage social cost. Public infrastructure projects have been halted. Real wages and pensions have been crushed. The price of Milei’s libertarian utopia is a bruising, painful transition that makes Thatcherism look mild. But weening addicts off their drug of choice is always painful, while the alternative is fatal.
Could SA ever stomach such a radical approach? Unlikely. Not while the ANC remains anywhere near power. For all its rhetoric about fiscal discipline the party is shackled to a political base that demands more state spending, not less. Black business, unions and the millions dependent on social grants all expect government to continue doing what it always has: distribute, sustain and protect. The notion that the ANC would risk alienating these groups to pursue genuine austerity is laughable.
Then there’s Elon Musk’s Department of Government Efficiency (Doge) in the US, a project that in true Muskian style promises to slash wasteful government spending with AI, greenhorn coders and a few well-placed tweets. The reality? The US deficit has barely budged.
The US treasury’s daily cash withdrawals provide a high-frequency indicator of government spending. Since US President Donald Trump took office, federal outlays have averaged $30bn per day, compared with $26bn per day during the same period under Joe Biden last year. Notably, spending has increased since January 28, despite Musk’s claim that Doge is saving the federal government $1bn a day.
The problem, as any serious economist could tell you, is that the big-ticket items such as social security, healthcare and education spending are politically untouchable. The idea that “waste” alone can solve fiscal crises is the stuff of libertarian fantasy.
Yet SA’s Treasury might be tempted to peddle a similar fantasy: trim corruption, cut a few unnecessary jobs and voilà! budget crisis solved. If only. The tax base is already too narrow. Growth is too sluggish. State-owned enterprises remain bottomless pits of inefficiency and political patronage. Cutting waste is necessary, sure, but it won’t fix an economy strangled by rigid labour laws, BEE policies that reward corporate inertia over entrepreneurship, and a crumbling local government infrastructure that caused this columnist to spend yet another weekend without power while, mercifully, water was restored.
The numbers are getting worse, not better, with Trump’s Damoclean sword hovering. Debt-to-GDP is set to peak at 75.5% (or higher, if you trust Michael Sachs’ gloomier projections). The deficit is likely to exceed the already dismal 5% forecast. Inflation might be lower than expected, but so is GDP growth. This is a budget built not on optimism but on the reality of constant “fiscal slippage”, which is just a polite way of saying, “We keep spending more than we can afford, and we’ll probably keep doing so.”
The best-case scenario is that the Treasury manages to stabilise debt and reassure investors that SA is at least trying to be fiscally responsible. The worst-case scenario? Higher taxes choke off growth, investors realise the GNU is nothing but the ANC in its partners’ clothing, and the local government crisis of failing water and power infrastructure reaches a catastrophic tipping point.
What happens when the money runs out? When bailouts and fiscal sleight-of-hand are no longer enough? The state of the national address was full of grand pronouncements on fixing failing municipalities and professionalising water and electricity utilities, but who will manage this miraculous turnaround? The same officials who drove the system into the ground?
Taxing the rich won’t solve this crisis. The deeper issue is that SA’s economy simply isn’t growing fast enough to sustain the welfare state it insists on maintaining. Godongwana’s budget will tell us whether the GNU has the stomach to face this reality or whether we’re simply shuffling towards the edge of the fiscal cliff with business as usual. Either way, the mask is slipping. And this time the numbers won’t lie.
• Avery, a financial journalist and broadcaster, produces BDTV’s Business Watch. Contact him at Badger@businesslive.co.za.
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