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Finance Minister Tito Mboweni prior to his maiden Budget speech in Parliament in Cape Town yesterday. (Gallo Images)
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Perhaps what Treasury is heralding is the long-awaited "tough choice". And perhaps doing so is a necessary first step to clawing the country back to something resembling sustainability, writes Terence Corrigan.
Has South Africa finally arrived at an inflection point, a
moment of change? Treasury has directed government departments to plan for spending
cuts. In preparing their budgets for the next three years, they are to reduce
spending by 5% in 2020, 6% in 2021 and 7% in 2022. Hardly unexpected, this
points to just how serious a financial bind South Africa now finds itself in.
It comes on top of repeated acknowledgements of the dire
state of public finances and the troubling direction in which the country is
moving. Over the past few months, a number of stopgap interventions and
proposals have been floated – such as cutting municipalities' catering and
travel spend, and limiting refurbishments on ministers' residences – but Treasury's
demands are something of a different magnitude.
Voices have been warning for over a decade that the country
was overextending itself. The broad contours of this are well known. Government
itself acknowledges that its wage bill is excessive – which has been driven significantly
not by inflation or even by employment growth, but by generous, above-inflation
increases over the years.
FRIDAY BRIEFING: SA's self-imposed economic crisis
Over the past few years, public attention has been drawn to
the constant need to rescue from penury the country's state-owned enterprises.
Just this year, for example, R23bn was earmarked for Eskom in February, with
another R26bn announced in July.
Topping it all, revenue is slumping. The last financial
year was the fifth in a row in which revenue collection had fallen short of
target – the SA Revenue Service collected R1 287bn against an initial
estimate of R1 345bn, a shortfall of some R57bn (in the ballpark of what
has been passed on to keep Eskom afloat).
To this can be added the unquantifiable, but doubtless
cripplingly serious, impact of corruption and general inefficiency. Perhaps the
most distressing thing about all of this this is just how much money South
Africa's overburdened people have been made to hand over for such indifferent
And so South Africa finds itself ever deeper in debt,
veering closer to a final credit downgrade, which would compound each of these
problems, making the country's fiscal malaise pretty much unresolvable.
So perhaps what Treasury is heralding is the long-awaited "tough
choice". And perhaps doing so is a necessary first step to clawing the
country back to something resembling sustainability.
Though perhaps not… Whether such cuts will be implemented
is another question.
Inasmuch as Finance Minister Tito Mboweni has made clear
the baleful fiscal position that the country has found itself in, he has also voiced
frustration at the manner in which this has been received: "Demands for
expenditure far outweigh revenue. What I think I find surprising is that no
matter how many times one explains the constraints that we face on the income
side, the demands on the expenditure side do not moderate."
The past few weeks have at least made that clear.
Legislation defining the proposed National Health Insurance (NHI) has been
introduced. Like little else since the 1990s, this seeks to change the face of
healthcare in the country, establishing effective government control over the
systems to deliver it. It is likely to outdo Eskom in its financial scale. Yet,
breathtakingly, there is no (official) sense of what it will cost.
Health Minister Dr Zweli Mkhize has said that to ask about
costs is "the wrong question". President Ramaphosa's advisor on the
matter, Dr Olive Shisana, rather bizarrely, said: "The demand that the NHI
Bill should indicate costs is unfair because costs change over time." Strangely,
she also claims that the additional taxes needed will be lower than medical
scheme contributions. In any event, fiscal realities do not feature
Ominously, some in government are eying another way out.
Central to this is the idea of expropriation without compensation, something
articulated in the language of land reform, but ultimately applicable to so
much more. This is to try to mandate its way out of trouble – and increased
latitude on the part of the government to seize assets has enormous attraction
to politicians who have never reconciled themselves to the idea of property
Indeed, rather than a move on land and livestock, this may take
the form of commandeering savings and pensions. There has been much talk of the
possibility of prescribed assets for "developmental" purposes. In
Parliament recently, Ramaphosa danced around the issue, refusing to commit
himself in plain language. But ultimately, the direction was in favour of doing
so: "We need to have a discussion as a country. We are faced with a
situation where our financial resources have been depleted, and quite often
pension funds make good returns on infrastructure development projects … let's
have a discussion."
It's hard to see in that something other than a conversation
structured around the terms on which the government will appropriate what it
feels it needs. The fact that the depletion of "our" financial
resources owes a great deal to the quality of stewardship that the government
has exercised so far will not reassure those who have struggled to save and
provide for themselves.
This may postpose a fiscal reckoning for the state, but
offers nothing beyond a palliative. For South Africa's people, it means the
ongoing insecurity of an abusive political economy.
Above all, pursuing short-sighted extraction to prop up a
flawed system (and by so doing, dodging the hard choices) compromises the
essential element of a real solution, a rapidly growing economy.
An inflection point? Perhaps. What the country's political
elite chooses in the coming months will weigh on South Africa for years to
Corrigan is a project manager at the Institute of Race Relations.
Disclaimer: News24 encourages freedom of speech and the expression of diverse views. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24.
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