Briefing media last week, finance minister Enoch Godongwana said he and his team would be working hard to produce a “saleable” budget document to present to parliament on May 21.
You have to wonder why the minister didn’t think of crafting a saleable budget in the first place. It could have saved everyone a lot of the trouble and trauma that has surrounded the budget process and the government of national unity itself since he failed in his first effort to table a budget on February 19.
Call it school fees, but the minister says lessons have been learnt all round. There will be a more consultative process this time and a new, more durable process of consultation is being devised which will start latest September, ahead of October’s medium-term budget.
Meanwhile, however, the minister and politicians need to find a way to make the three year medium-term budget framework work between now and May 21, in a manner that is credible to the markets. It will not be easy.
It is worth remembering that this all began when the minister unexpectedly decided, some time between his October budget and his February one, on a more than R200bn increase in government spending, after years of spending cuts. He sought initially to fund this with a two percentage point VAT increase, which became a one percentage point increase over two years, which has now ended up as no VAT increase. That leaves a R75bn revenue hole over three years. However, the revenue hole could be larger than that in this new, chaotic Trumpian world if economic growth falls far below Treasury’s now overoptimistic estimates.
The GNU’s leaders need to face up to getting rid of public entities and programmes that provide little if any return on taxpayers’ investment.
To their credit, all parties in the GNU seem to agree that borrowing more is not an option. As Godongwana reminded us last week, the government is now spending R1bn a day on debt service costs and continues to borrow about R2bn daily as it is. The Treasury says it still aims to meet SA’s fiscal goals — with the debt to GDP ratio peaking in the 2025/26 year — and as long as it can do that it will retain its fiscal credibility. The goals also include shifting the composition of spending towards infrastructure and other growth-enhancing measures.
But how to achieve all this? For now, it’s not a question of cuts to spending baselines, which are not being discussed. Rather, it is a matter of rolling back some of the net R142bn of increases that Godongwana had pencilled in. There is surely going to be a giant political bun fight over which ones.
Everyone will want to defend the R70bn of additions to spending on front-line services. Some will also try to defend the extra social grant increases that were meant only to cushion the impact of the VAT hike. Will they also defend the extra billions allocated for a planned early retirement scheme? Or the large sums allocated to a dysfunctional Passenger Rail Service Agency? Or even the R46bn for infrastructure — often easy to cut, but undesirable if the government seeks to shift money to much-needed growth enhancing projects.
The crucial task in the short term is to agree on cuts to spending that keep fiscal consolidation on track. Beyond this budget, there are much more searching conversations and decisions that are needed to start cutting the tens of billions of rand of inefficiency and waste that the government’s own spending reviews of the past decade have identified.
The GNU’s leaders need to face up to getting rid of public entities and programmes that provide little if any return on taxpayers’ investment. They need to implement some of the reforms to the public sector and the public finances that the government has long stalled.
The landmark achievement to come out of this year’s budget battle is that it has opened up those conversations, paving the way for much-needed political and policy choices about where money should be spent, or not. The GNU’s leaders should not balk at making those choices. It will be the GNU’s biggest test.
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