Treasury’s tough love must be backed by Ramaphosa

There are two realistic options to fund an election budget: more borrowing or increased taxes

Finance minister Enoch Godongwana must be a Kaizer Chiefs fan. There are two guarantees in South African life: increasing taxes and Kaizer Chiefs losing. But Chiefs fans are famous for never giving up. They get up and go even when it’s clear that victory is impossible.

Godongwana has been consistent in meting out tough love to SOEs and government departments — and is doing well in that regard.

On Wednesday, he tabled a medium-term budget that showed the National Treasury is tightening the screws on Eskom and Transnet. It gave no money to Transnet, and Eskom is on warning: should it not show progress, the debt relief programme in which the government took over a portion of its debt would be in jeopardy.

Tito Mboweni, his predecessor, also tried the tough love approach with SOEs and other big-spending departments, but he had too little political support to help him drive the approach across all of government.

Godongwana joked that some media questions were above his pay grade when he addressed the customary budget day press conference in parliament on Wednesday.

There are a couple of measures that will require support from President Cyril Ramaphosa if the Treasury is to succeed. An example is the need for state reorganisation. Godongwana said a joint plan to review government departments, entities and programmes over the next three years was being prepared. It would address overlapping mandates and functions and create standards for more sustainable remuneration of executives at public entities receiving transfers from the fiscus. The government also intended to leverage this plan to direct scarce resources to priority areas.

The only problem is that we do not know who will govern South Africa after next year’s election, and whether these plans will survive possible seismic political changes. One strong likelihood is that the ANC will lead a coalition government, something that will reduce its patronage levers as it shares ministries with partners. That may make it difficult to whittle down the size of the state.

Godongwana sees his budgeting approach as a dance of chasing economic growth, tightening public finances management and protecting the vulnerable.

Without economic growth, or cutting spending, protecting the poor and sustaining public sector jobs become the only functions of the government. To sustain that, the state will have to borrow and accept that the budget framework will lose some credibility. Igniting growth must be driven from the top, with clear targets and timelines behind economic reforms. Right now, the reform agenda is an orphan, without political parents. It is essentially left to technocrats at the Presidency and the Treasury, when it ought to be the gospel the rest of the cabinet believes in.

Godongwana needs Ramaphosa to swear by the reforms and demand the same from his cabinet appointees so that senior civil servants can be reoriented towards pursuing the need for economic growth. Without that, Godongwana is exposed to political attacks from his cabinet colleagues. He seems unperturbed by the risk, and unfazed by intra-ANC power battles.

There were signs this week that he is turning the screws on his cabinet colleague Pravin Gordhan by not providing funding for Transnet’s turnaround. He is also putting Eskom on warning, demanding improved planning, efficiency and accountability from both parties.

Mboweni tried this approach and was sucker-punched by Gordhan, who could get the cabinet and the president to approve more support for SOE funding. Mboweni had no appetite for intense intra-ANC wars. He would rather torture a chicken and tweet about it than participate in futile cabinet wars without the support of the president.

Godongwana will soon find himself exactly where Mboweni was during his term as finance minister. Both their missions are similar; the difference is each man’s appetite for Ramaphosa’s lack of grit and drive, coupled with the ANC’s messy approach to anything.

He points out that some questions are above his pay grade. Come February the Treasury will have to fund plans that will have been captured in the ANC manifesto, and more pain will visit the finance minister.

He will feel accustomed to political losses like a Kaizer Chiefs fan is used to losing. There are two realistic options to fund an election budget: more borrowing or higher taxes, as cuts are unlikely in this political environment.