Enoch Godongwana’s job has been made easier by the humiliating rejection of his budget. After licking his wounds and dusting his nose, he has to pull out the axe and behave like a madman.
The budget was rejected because he ignored the most obvious possibility: cutting expenditure. Asking consumers to give up 17% of their disposable income (when zero-rated goods are not considered) was never going to be palatable when the fat cats in government keep all their trimmings.
The economist in him overtook the sensible politician he has always been. While his grasp of fiscal consolidation is impressive, his economics must be practical and acceptable to the political terrain.
Now, what does he do? It’s easy. He needs to pull out a spreadsheet to work out how a few numbers can give him a compromise. He could propose a one percentage point VAT increase, taking the tax to 16%, coupled with spending cuts.
He must then take an axe and hack all the departmental budgets, starting with President Cyril Ramaphosa’s Presidency, which has been ballooning.
He can then aim at the agriculture department headed by John Steenhusein and do the same. On average, he could get R1bn from each of the departments. Before you know it, he has R30bn in savings.
It does not have to be as haphazard as my back-of-envelope calculations here. The Treasury’s budget and public finance units know all the details of the government departments that have no capacity to spend. These departments, both at national and provincial level, send money back every year. It wouldn’t be hard to find the consistent underspenders. Even an intern at the Treasury could juggle the data and find where to cut.
In all the madness of this week, Godongwana should be happy to have introduced a new politics where he slammed his foot down against borrowing. He can hold his ground on this. It is inexplicable that he did not propose cuts.
He and his friends need to have a hard look at themselves after failing to manage the communication of the impending VAT hikes properly.
The Treasury has established a beautiful fiscal framework over the years that has averted the element of surprise. The medium-term budget policy statement tabled in November needed to make it clear that there was a shortfall that necessitated tax hikes. Failure to do so has discredited the fiscal framework, which is a guide to the budget over three years.
We have to be grateful that the ANC is no longer the only chef in town. It is this party’s mismanagement of the economy over the three decades that has placed us in this quandary
It is not a pay-as-you-go affair where spending items like the social relief of distress grant have to be entered into the budget every year. The grant was introduced to shield the poor from the vagaries of Covid-19 but will probably remain in perpetuity since the genie is out of the bottle.
Godongwana will also need the express support of his boss, Ramaphosa. Finance ministers are vulnerable when they are not bullet-proofed by the support of the First Citizen.
A shock like a two-percentage point increase in VAT needed to be steered through the political gridlock with the president’s input. Ramaphosa needed to act as Godongwana’s blue-light brigade. He could have hinted in his state of the nation address that South Africa needed to take some pain in order to cope with high debt and a new way to fund economic growth.
He could have called Steenhuisen to discuss the need to support Godongwana. He would not have needed to divulge much, as tax policy is always market-sensitive and needs to be handled with care.
Godongwana has to be prepared to give and take simultaneously, and not just take from the consumer.
We have to be grateful that the ANC is no longer the only chef in town. It is this party’s mismanagement of the economy over the three decades that has placed us in this quandary. Growth has been anaemic while public debt as a percentage of GDP has ballooned. This is an opportunity to look at the fat in the system and no one should be spared.
Godongwana can offer the unions above-inflation salaries if they are prepared to live with cuts. The cuts could be made in the administrative layers of the public service, so workers like teachers and nurses are spared.
His legacy as finance minister will depend on his ability to make tough decisions and his readiness to be unpopular among his own colleagues.
The missteps in the introduction of the VAT increase are, of course, clumsy, but he has a gigantic opportunity to redeem himself. Why waste a crisis? He must grab that axe and go big or go home.
• Mkokeli is lead partner at public affairs consultancy Mkokeli Advisory
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