Fixing SA’s economic woes

Budget shows Treasury is desperately short of ideas about how to do this

AT THE core of this year’s Budget proposals from South Africa’s national Treasury is the admission that national debt is no longer expected to stabilise.

In previous years, bar one brief exception, Budgets and medium-term Budgets repeatedly promised that debt would stabilise even as previous years’ promises were broken.

The reasons are, however, not new. There’s the low economic growth rate, 0.9% for the current year. There are shortfalls in tax collection, R63 billion in the current year.

Then there is higher-than-planned spending on state-owned enterprises (SOEs). As a result, the ratio of national debt to the size of the economy is expected to exceed 70% in 2022/23. Five years ago, former finance minister Nhlanhla Nene promised it would not exceed 50%.

Debt service costs are now about 15% of government spending and the fastest-growing spending item. This is up from 10% in 2014/15.

Population growth is estimated to be 1.4% a year, meaning that economic output per person is declining. In that sense, South Africans are getting poorer.

The most notable SOEs are Eskom and SA Airways. Eskom has been allocated an enormous R112bn over the next three fiscal years. The national airline will get a minimum of R16.4bn. The spending on both entities is R60bn higher than previously planned.

Treasury proposes to offset the revenue shortfall and expenditure increase through a R160.2bn reduction of the public sector wage bill.

It is acknowledged in the bowels of the Treasury’s documents that the cuts in the wage bill “will inevitably have negative consequences for the economy and social services”. Reducing the wage bill will also hit tax revenue collection. Unlike previous years, no tax increases are proposed.

Meanwhile, at the policy level, the proposals suggest “structural reforms”. These are needed to increase economic growth, without which only more pain will follow in subsequent years.

But these aren’t adequately substantiated in relation to South Africa’s current economic situation. The current Budget proposals show that the government is hamstrung by the country’s fiscal and economic situation. And that it’s distressingly short of ideas to get out of it.

Looking at the new Budget proposals, they amount to the Treasury wanting public servants to pay for Eskom bailouts directly from their current and future salaries.

The proposal of various trade unions to use worker pensions to relieve Eskom’s debt burden appears to have been disregarded. In the place of that seemingly sincere initiative, the Treasury has opted to play a game of brinkmanship.

Its proposal on a wage reduction was formally put to unions only the day before it was tabled. Not only does this proposal imply immediate pain for workers and the economy, but it also serves to undermine the role of workers and unions in deciding the restructuring and future trajectory of SOEs.

Given the desire to use Eskom’s crisis and the country’s fiscal situation to push various vested and ideological agendas, this seems unlikely to be coincidental.

What stands out from the Budget is how little of substance the Treasury and the minister of finance have to put on the table in the way of feasible solutions.

Economic growth is rightly cited as the critical issue. Within that, “adequate electricity supply” is a priority. Yet the Treasury continues to rest heavily on rhetoric about private sector participation in the generation of electricity without providing the most basic information.

In particular, what’s missing is an estimate of the impact of increased private sector energy generation on Eskom’s revenue and finances. Since Eskom is the main expenditure pressure and risk, this is a remarkable omission. The monster in the room remains Eskom’s debt. It is a matter verging on a national disgrace that a feasible consensus plan has still not been tabled to address it.

But Eskom is not an isolated case. One of the best examples of state failure on policy and public finances is the Road Accident Fund. Its accumulated liabilities have been accelerating dramatically in recent years. A rapid decisive intervention was required, yet that still has not happened. In the interim, the fund’s liabilities have risen from R180bn in 2016/17 to a projected R593bn in 2022/23.

Other than the failure to table a convincing plan for Eskom, the Treasury repeatedly refers to “structural reforms”. This is facile, recycled rhetoric, a smokescreen for recycled economic policy proposals. To the extent that there is any substance to the Treasury’s version, it emphasises the regulation of various sectors of the economy. Yet its proposals are outdated and dubious.

It’s almost two years since Cyril Ramaphosa took over as president of the country and evidence is mounting that parts of the state being relied on to steer the country out of a potential fiscal and economic crisis, the national Treasury and the Presidency, lack the intellectual capacity or political savvy required. |