There are only two levers of any significance that finance minister Tito Mboweni can pull if he wants to slow the spiral in SA's public debt in the next few years. One is the public sector wage bill. The other is the effectiveness of the South African Revenue Service (Sars) and its ability to close the tax gap. Neither of them is likely to help him much in the next year or two. That means the budget numbers he will present on February 26 will be bleak, particularly for the next two fiscal years. The question will be whether he can come up with a credible enough plan to start improving the state of SA's public finances beyond that.
That isn't an issue just for rating agencies or the market: it matters even more for the poor. That's because on its current trajectory, the government is heading towards spending almost 20% of the revenue it collects on paying the interest on its borrowing - money that's going to bankers and bondholders instead of to public services or public infrastructure.
The fiscal story is that economic growth has come in consistently worse than expected in recent years, so that tax revenue has fallen way short of budget targets. But the government has continued to increase spending, albeit at a slower rate. It has sliced and diced budgetary allocations every which way to try to rein in spending growth and find money for items such as state-owned enterprise bailouts. But the biggest item is the public sector wage bill, which consumes 46c in every rand the government collects in tax revenue.
So it's that bill that needs to be reined in, and the only route is through a high-level political compact between the government and public sector trade unions. This week's state of the nation address hinted at early progress on that front. President Cyril Ramaphosa said Mboweni would announce measures to shift the composition of spending away from consumption - code for wages. He said the government was engaged with labour and other stakeholders to contain the public sector wage bill and reduce wastage. But engagement is not agreement, and chances are that any deal would only meaningfully affect the wage bill after the next round of pay talks in 2021.
Nor is there much room on the revenue side. The further hike in the value added tax rate which economists are speculating about is surely not going to happen - a one-percentage-point hike would only raise R15bn-R16bn but could be politically even hotter than the last hike. And while further taxing the rich might be politically useful, it could drive more emigration or tax evasion without raising much more revenue. Raising the maximum marginal rate from 45% to 48% would bring in just R2bn-R3bn.
It had been hoped revenue might be boosted this year as a more effective Sars started to collect on an estimated R80bn-R90bn of tax debt. But though new commissioner Ed Kieswetter has acted swiftly to rebuild Sars, the damage done by state capture is deep and a turnaround will take time. More important will be efforts to close the tax gap - between what ought to be collected and what's actually collected. Judge Dennis Davis estimates this at R70bn or more, with customs fraud the largest component, followed by high net worth individuals and corporate base erosion and profit shifting, and VAT fraud.
The judge, who led the tax advisory committee which sat from 2013-2018, is chairing a reconstituted committee with a mandate to close that R70bn tax gap. He reckons Sars could be collecting a third of it by this time next year. But Mboweni clearly can't start budgeting for that until the evidence is there.
Meanwhile, the minister is likely to tell it like it is, which could be bleak. But there is at least a decent chance that he can pull the two levers to narrow the fiscal deficit three years out. That still won't bring the public debt to much below 70% of GDP. But it's better than 80%.
• Joffe is contributing editor
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