EDITORIAL: A step forward or a stumble?

It is the proverbial glass half-full versus half empty.

It is now clear that the revised budget that finance minister Enoch Godongwana tabled on Wednesday is the start of a negotiation process, not the document cast in stone that South Africans had become used to. The glass is at least half-full because this is democracy in action.

The government of national unity (GNU) partners, particularly the DA, have flexed their collective muscle. Cabinet members took the budget seriously and engaged with spending and revenue trade-offs in ways they never did before. The budget gives expression to the government’s economic policy choices, or should do, and to the extent that SA’s political leaders are now taking it more seriously than before this can only be good. The negotiations to come in parliament are bound to be messy. But ideally they will yield a better budget.

That’s the glass half-full. Where it’s hardly half-full though is that not only will the process be messy, but the risks are high. And the outcome may not provide a sustainable fix to SA’s public finances, at least not yet.

The focus now turns to the parliamentary committee that will have to consider the budget. Time is tight — the fiscal framework must be approved within 16 days from budget day. It can be amended, but once it is in place, the numbers for spending, revenue and borrowing are locked. Beyond that, parliament can make changes within the spending envelope but it can’t increase it. Those changes too are on deadline, with parliament given 35 days to approve the division of revenue bill that provides for allocations to provinces and local government and about four months to approve the appropriation bills that allocate money to departments.

Then there are the tax bills which come later in the year. It’s a complicated process which many are realising only now is important. Some GNU and ANC parliamentarians are new and many don’t have much economic, fiscal or tax policy expertise. Add the fierce contestation that has been going on between and sometimes within the parties, and it will make for challenging talks. The noise itself could weigh on investor confidence, as will the prospect — however unlikely — that the budget may not get sign-off at all.

All of that could contribute to higher borrowing costs though for now, SA is still basking in the narrowing of bond yields it has enjoyed since the GNU took office last year. And crucially, the one thing all parties agreed on is that the government must not borrow any more. Already, the borrowing it has consumes 22c in every rand the government collects in tax, crowding out social and development spending and driving up borrowing costs across the economy.

Markets have taken great encouragement that there has been no disagreement within the GNU over the need for the government to reduce the public debt burden. Everyone agrees that the government must stabilise the debt-to-GDP ratio, and run the primary budget surpluses needed to bring it down to affordable levels over time — in other words, to do fiscal consolidation. The argument is about how to do that.

The budget Godongwana presented this week does a reasonable job of doing that, if hardly an inspiring one. The minister didn’t cut his spending plans by much at all: he still plans an additional R142bn net over the medium term (the gross total is more than R200bn but he had already set aside contingency and provisional funds he will draw on, though this will run down the buffers he had in reserve to cushion the budget against shocks.

He has compromised, however, on the two percentage point VAT increase he originally proposed to fund the extra spending. The new plan is for a 0.5 percentage point hike this year and a further 0.5 next year. This year’s hike brings in just R13.5bn after zero ratings, and it’s possible next year’s might not even be necessary — the extra R7.5bn the Treasury has now allocated to the SA Revenue Service for the next three years should yield easily that in compliance and efficiency gains each year.

All this tweaking and trimming isn’t going to fix the fact that SA has a public debt burden that an economy growing at less than 1% a year cannot afford. A more durable solution is urgently needed, and that means the government facing up to the many programmes, projects and entities which consume much taxpayer money without yielding the outcomes that SA’s people and its economy need.

Which is why the best news out of this week’s budget speech is that President Cyril Ramaphosa has undertaken to establish a joint Treasury presidency committee to identify wasteful, inefficient and underperforming programmes. He needs to do so fast, and not just identify but act.