The government’s failure to table a budget last week was embarrassing and depressing. I am deeply concerned about the apparent failure of process or political socialisation that led to a budget that did not have sufficient political support to pass on the day it was due to be tabled.
The budget is one of the most important laws the government of national unity (GNU) has to pass. That the coalition failed at first ask is telling. This will be sorted out, and hopefully reflects growing pains in a political system that is in the early stages of coalition governance. However, the shambolic handling of the budget process by the GNU partners is an indictment and dented the GNU’s credibility.
Questions should also be asked about the budgeting process and how it has changed over time. Policy measures, be they in tax or expenditure, were typically mooted when the Treasury presented its medium-term budget policy statement in October and fleshed out and ratified it in the budget in February.
The aborted budget introduced a 0.7 percentage point of GDP increase in expenditure for the coming fiscal year relative to what was in the medium-term budget. To keep the budget balanced, the Treasury wanted a VAT hike. We cannot interrogate Treasury officials directly about these changes as they are in lock-up before the new March budget date. However, it would be interesting to know where R50bn of expenditure came from in the two working months between October and February.
Making proposals in the medium-term budget and using the period until the budget to build consensus about the proposals made sense. There is a three-year budgeting cycle, and to have such an important tax policy change when nothing material has changed in the economic environment between the medium-term budget and the budget is difficult to understand.
That something as politically contentious as an increase in VAT was seemingly put forward without enough time for consultation suggest serious process weaknesses. It is unclear whether these weaknesses are political, technocratic or a combination of the two. Either way, the budgeting process has lost credibility. We used to have a “contract” budgeting process, in which we knew with a fair degree of certainty what we were dealing with. Now it’s “pay as you go”.
Depressingly, the budget fiasco brought into sharp focus how few good decisions are available to SA on fiscal policy. We cannot borrow more, because it is expensive to do so. Interest payments are now more than 20c of every rand raised in taxes, and are crowding out service delivery.
We cannot easily spend less because basic service delivery is already suffering from years of declining allocations, especially in real terms. The Treasury is attempting to increase the social wage via higher allocations to social grants, health and education among others.
The need to direct money towards programmes that enhance economic outcomes for the country as a whole, and for households, has also found expression in the budget. From home affairs to infrastructure there is little argument that money spent there will benefit the economy over time. However, spending needs funding.
If you can’t borrow, you must tax. At about 27% of GDP (IMF 2022 figures) SA’s government revenue is low relative to the average developed economy, a bit high relative to emerging markets and slightly below the average of the sample of 152 countries. Arguably there is room for more revenue, but who should be taxed?
This is an old battle in SA, one the Treasury could avoid while the country had borrowing capacity and service delivery collapse was less obvious and politically costly. Unfortunately, the room to manoeuvre is gone. We have consumed our infrastructure and borrowing capacity. Now difficult decisions must be made.
To the extent that this shows an economy in a corner, and a polity struggling to make hard decisions, the nontabled budget and subsequent reports of draft rejections should worry us.
• Lijane is global markets strategist at Standard Bank CIB.
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