Deliver on those promises to stabilise the public finances

After two years of relatively national upbeat budgets during the 2021/2022 commodities boom, we are now back in the doom and gloom budgets where every revision tends to be for the worse – and the budget arithmetic grows ever more difficult.

As finance minister Enoch Godongwana prepares to present this government’s last pre-election budget on Wednesday, it’s worth reminding him and his cabinet colleagues of some of the undertakings he outlined in November’s medium-term budget speech. Stabilising the public finances was one. Another was to ‘fast track growth-enhancing reforms ’— including a new financing mechanism for large infrastructure projects. A third resolve was ‘reconfiguring the structure and size of the state, while strengthening its capacity to deliver quality public services”.

What has become of these priorities is a question. Whether the finance minister will be able to answer it on Wednesday is not clear, but we will be watching carefully to see that he doesn’t make any more such promises unless he can demonstrate at least some progress on the ones he made in November.

It’s hard not to sympathise with Godongwana, who has to make the numbers work somehow against the background of an ailing economy, and a government which is unable to make key decisions or to deliver on some of those it’s already made. And if that’s the case before the election, will it be any better after?

In November Godongwana trimmed his growth forecast for 2023 to 0.8%, rising to just 1% in 2024. Realistic as that was, it’s possible growth could come in even lower, depending on how much damage Transnet and Eskom are doing to the economy. That would mean lower revenues even than even those estimated in November – which were revised down already from February’s numbers. And as long as economic growth continues to languish, and government continues to move at a snail’s pace on the growth-boosting reforms Godongwana mentioned, the revenue, there is going to be very limited capacity to extract more revenue out of any kind of tax.

That means spending cuts will be have to do the ‘heavy lifting’ – as Treasury put it – to achieve the fiscal consolidation government has long promised. If SA cannot deliver on that promise, the cost of servicing the government’s huge debt burden will rise even beyond its current 20% of government revenue, crowding out the government’s ability to spend on anything useful. If it cannot deliver on the consolidation promise, the government’s borrowing requirements, which are already crowding out private productive investment in the economy, will rise to levels which become increasingly difficult to fund, risking a debt crisis that could risk SA’s ability to control its own economic destiny.

Godongwana therefore has to find a fiscal path that will put a halt to the constant rise in the government’s debt burden. And it’s going to have to rely on spending restraint. But it’s the spending that is the minister’s big challenge. He can pencil in spending growth of well below inflation, and project R213bn of spending cuts over four years as he did in November.

But holding public sector trade unions and his cabinet colleagues to those projections is a challenge, particularly in an election year. The government should be facing up to big policy decisions that could cut spending meaningfully, such as restructuring the whole ailing student grant system, or cutting the defence budget, or cutting loose failing public entities that have little rationale. We would love to see serious policy debate on the government’s expenditure priorities and firm efforts to shed those that cannot be justified. In the absence of such policy processes, the risk is that spending cuts will be done in dysfunctional ways that damage frontline services and the economy – if they are done at all.

Godongwana has no doubt been under pressure to spend on everything from social grants to Transnet bailouts and Wednesday’s budget will reveal to what extent he has had to cave in to pressure. We trust he has stood as firm as he promised on stateowned enterprise bailouts. We want to see how Eskom has delivered relative to the conditions he set for that bailout; we hope he has not given in easily to pressure to bail out Transnet, most of whose operations could be done better by the private sector.

Crucially too, if Godongwana is planning to tap the sizeable paper profits on SA’s gold and foreign exchange reserves (housed in the GFECRA, the gold and foreign exchange contingency reserve account) he needs to work closely with the Reserve Bank to ensure it is done responsibly and carefully. And crucially, he cannot squander the proceeds. They need to be used to bring down SA’s high level of public debt and reduce the government’s need to borrow – not to fund populist spending by politicians.