Michael Sachs, former head of the Treasury’s budget office and now a professor at Wits University’s centre of inequality studies, says last month’s budget crash signalled the end of fiscal policy being the sole preserve of a tiny governing clique.
“For 30 years the ANC could ensure that whatever decisions were taken by the president and finance minister would be carried through in cabinet and parliament. What happened here was a demonstration that those conditions no longer exist.”
Either the Treasury and the president did not realise the game had changed, he says, “or they did realise the game had changed and decided to test the boundaries of what was possible”.
“Now we’re at a point where cabinet has to agree on the parameters of fiscal policy. You’ve got to get to a point where the whole of cabinet owns the budget.”
For the past 20 years policy has been going in one direction and the budget has been going in a different direction, he says. A salutary effect of the budget impasse is that this contradiction now has to be resolved within the cabinet.
“The GNU spent extensive time and devoted considerable effort debating something called the medium-term development plan (MTDP), but apparently did not think it would be important to have similar discussions about fiscal policy and what was going on with spending and taxation and borrowing, and how this relates to the MTDP.
“So we have an MTDP adopted by cabinet, and a week later we have a budget rejected by cabinet. There’s got to be a process where these things are on the table together.”
Policy is not really policy unless it includes some idea of how it is going to be financed, says Sachs.
“A policy that says ‘we want to have a better life for all’, or ‘we want a hospital service that works in a particular way’, is not really policy unless you can say how we’re going to finance it or what institutions we’re going to create to achieve it.”
The days of policy being delinked from resource planning and crucial institutional reforms are over. Policy can no longer just be wish fulfilment.
"Over the last 20 years or so we've had an increasing proliferation of policy, increasingly broad and huge policy ambitions, but not backed by a resourcing plan so that one can argue, 'do the resources need to be increased to meet the policy agenda, or does the policy agenda need to be trimmed to meet the resources'?
"The fact that we can now have that debate is more important than what is the conclusion of that debate, because it’s a debate that has been missing for a long time. And not by accident."
The vision of what drives growth in South Africa is not there in government. I don’t see a clear programme of where the GNU is leading the economy
— Michael Sachs, professor at Wits University’s centre of inequality studies
Politicians enjoy announcing spending and government programmes, but no-one enjoys announcing taxes.
“These two things have to meet. A budget by its nature is something that brings together the spending and revenue side of things. If you’re going to decide to spend and not think about the resourcing side of that, you can’t then say, ‘well, we have good policy but bad implementation’. The fact is you don’t have good policy, because it didn’t take account of the resources available for that policy.”
Sachs says the budget crisis has shown that a fiscal path to the stabilisation of South Africa’s debt, almost 75% of GDP and rising, is not politically feasible.
“The kind of expenditure cuts required are just too large. Only a significant increase in economic growth will decisively stabilise our debt. Fiscal consolidation is essential but cutting expenditure on education, health care, criminal justice has serious consequences for growth and development.”
Instead there needs to be a full interrogation of how the government operates, and whether the institutions that provide public services are incentivised to find efficiencies.
“If you just cut budgets all that happens is that inefficient systems and waste and corruption are defended, and the people who have power in the system are able to pass those cuts on to frontline service delivery. So we have no choice but to improve the efficiency of government, but that will take time.”
More immediately, there needs to be a clearer and more urgent political commitment to reforming Eskom, Transnet and local government, and a clear programme of economic growth, which so far is lacking.
Too many elements of policy are not being aligned with the budget to stimulate growth, he says.
“The GNU is focusing on the most important constraints like electricity, logistics and local government. It’s a non-starter unless we fix those, so we have to fix them. But once you fix those problems the vision of what drives growth in South Africa is not there in government. I don’t see a clear programme of where the GNU is leading the economy.”
The budget crisis highlighted the absence of an integrated, agreed programme of government, he says. “The GNU statement of intent is just generalities. You need to get much more into the specifics of fiscal policy and a whole range of other policies.
“The problem is that even within the ANC there’s never been agreement on these things, even when the ANC dominated government. Now that we have more parties involved, building consensus is even more important.
“But it should have started in May 2024 and found its conclusion in the budget. Instead the process of building consensus seems to have started after the budget, triggered by the budget crisis.”
What the cabinet comes up with will have to be something that signals commitment to society, business and markets. Something people can buy into, he says.
Although he supports a VAT increase of a single percentage point, he believes there is no hope of it being acceptable unless there is a credible plan that shows how the burden people are facing is being shared by the politicians, starting with a reduction in the size of the cabinet.
If on February 19 finance minister Enoch Godongwana had announced a plan to find R50bn of savings from the government in the next six months by reducing the cabinet and cutting “the egregious luxury consumption of cabinet members”, he might have got away with a one percentage point VAT increase.
“But you can no longer just spring on people a two percentage point VAT increase with nothing in return and expect them to just roll over and accept it.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.