Years of pain ahead to get the economy into the shape it needs to be in

South African Airways was the elephant in the room at the presentation of the medium-term budget policy statement on Wednesday. Finance minister Tito Mboweni has never hidden his reluctance to finance the winding down of the mismanaged national carrier, but he finally succumbed to political pressure and provided the R10.5bn required to complete the rescue process, over and above the R6.8bn due to guaranteed creditors.

But where is that money coming from? According to the division of revenue bill tabled along with the budget, the National Treasury is cutting from provincial grants meant for school infrastructure, national health insurance, HIV and TB programmes and library grants. We are taking money meant for intervention programmes for the poor and redirecting it towards an airline that no-one, except the hardliners in the government and the ANC, thinks can still be rescued. Pressure group Section27 calculates that at least 1,390 school infrastructure upgrade projects — which include eradication of mud schools and pit latrines — have been suspended or cancelled altogether since Mboweni started taking from school infrastructure to fund Covid relief efforts. Now the winding down of SAA. Quite unconscionable.

Mboweni has another major headache on his hands. The bulk of the promised austerity is premised on attaining R306bn in savings from the public sector wage bill. He is banking on the courts agreeing with the government that it cannot afford the final leg of a wage agreement signed in 2018. Thereafter, the unions have to be convinced to accept wage increases of less than 2%, and a wage freeze for three more financial years.

That is not an option for public sector unions, which have called the budget statement “a declaration of war”.

A showdown looms.

Running this country’s diminishing finances has to be the most thankless job on Earth. In June, when he presented the special supplementary budget to make provision for the fight against Covid, Mboweni promised debt stabilisation at 87.4% debt-to-GDP by 2023/2024.

He has had to revise this upwards to 95%.

We are now one of the most highly indebted emerging markets, and paying through the roof to service the debt. With 21c of every rand spent by the government going towards debt service costs, it is more than what we are spending on health. It also means that the government has to borrow to repay debt, which is not just unsustainable, it threatens to plunge us into a debt trap. Ask Argentina, Zimbabwe and now Zambia — which is about to default on its sovereign debt obligations — what happens to countries that cannot pay back what they have borrowed.

It was heartening to hear the finance minister ask senior managers at national, provincial and municipal level, executives of state-owned enterprises, and public officebearers to consider taking one-off pay cuts in solidarity with civil servants. Indeed, public servants cannot alone be expected to bear responsibility for the failure to grow the economy, rampant state capture and uncontrollable debt. Everyone must look at the bigger picture and not just short-term gain.

This has to be accompanied by a greater commitment from the state to stop wasting money and spend wisely. There must never be a repeat of the looting that has put Eskom, SAA and Transnet in the mess they are in.

President Cyril Ramaphosa and his administration must also make rigorous efforts to ensure that his economic recovery and reconstruction plan is seen through. The Treasury projects a 7.8% economic contraction in 2020, but a rebound to 3.3% real GDP growth in 2021/2022. But this can only happen if we stick to spending cuts and implement reforms.

The Treasury is also looking at R40bn in tax increases over the next four years. What is clear is that we have to take years of pain before the economy can recover to levels where it can start showing real growth. Time to put shoulder to wheel.

Public sector unions have called the budget a declaration of war