Former President Jacob Zuma’s legacy hung like an albatross around the neck of his successor Cyril Ramaphosa, as a gloomy medium-term budget policy statement landed on Wednesday.
In the eight months since the tabling of the national budget in February, Ramaphosa’s hopes for higher growth, better tax collection and an uptick in jobs have been dampened as the costs of the capture years continue to wreak havoc.
The price of state capture was writ large in the policy statement, from the slashing of growth to 0.7% - down from February’s estimate of 1.5%, to the widening of the deficit, lower tax collections and a projection of skyrocketing administered prices. Electricity prices, for example, will go up by almost double the estimated inflation rate over the medium term.
SA's debt-to-GDP ratio is projected to grow to 59.6% before coming down very slowly. A downgrade by the last international rating agency to hold South Africa at investment grade, Moody’s, likely rests on South Africa holding this ratio below 60%.
All of these factors can be traced back to the era of state capture, where institutions from the SA Revenue Service to the state-owned enterprises were repurposed by networks of crony interests to extract rent. This rent extraction, in turn, exacted a high price on the fiscus by lumping the national budget with liabilities.
'Serious governance failures'
And the budget statement acknowledges as much.
“The Judicial Commission of Inquiry into Allegations of State Capture, chaired by Deputy Chief Justice Raymond Zondo, and the Commission of Inquiry into Tax Administration and Governance by the South African Revenue Service, chaired by retired Judge Robert Nugent, have both highlighted serious governance failures. These failures are beginning to be addressed.
“At SARS, for example, reforms under way include regularising VAT refund payments and rebuilding enforcement capacity,” says the policy statement. The commissions are projected to cost R409m.
In addition, the document notes that “the Auditor General’s latest findings raise significant concerns about the level of irregular spending across government. The independent report on VBS Mutual Bank, including the reported large-scale theft of public funds, reinforces those concerns."
Mboweni, referring to the scandal-plagued Giyani water project, said parts of the tender system had become cesspools of corruption.
As the Nugent commission of inquiry has shown, tax administration at the revenue collection agency was corrupted during the regime of now suspended SARS commissioner Tom Moyane.
The commission has probed whether his administration withheld VAT refunds in order to bolster tax collection figures to put a sheen on his work. It is clear from Wednesday’s budget statement that this was done. It notes that, “Tax revenues have been revised down, partly due to higher value-added tax refunds.”
A key message of the tough-talking, reform-minded budget is that corruption and poor governance are trends in South Africa’s public finances that can’t be ameliorated by the fiscus or by the budget any longer.
“South Africa’s budgets for social and economic services are substantial, but the quality of spending is in many areas unacceptably poor, undermining (and in some cases collapsing) service delivery. Poor governance – reflected in inefficiency, corruption and financial mismanagement – reduces the impact of spending and increases pressure on the budget, ” reads the budget policy statement.
Government will spend R5.9trn over the next three years; R3.3trn will be allocated to education, health, the provision of water and electricity services and social grants. Working with the Auditor General Kimi Makwetu and private firms, the Minister of Public Enterprises Pravin Gordhan is set to reveal previously unreported irregular expenditure amounting to R27bn at state-owned enterprises.
These state firms claw at the budget too and further bloodied the picture. Public information has shown how Eskom, Transnet, the commuter rail company Prasa, Denel and SAA were all ensnared by capture networks and exact massive contingent liabilities for government.
“Reforms to strengthen network industries, provide sustainable and affordable increases in water and electricity, and reduce the costs of doing business are likely to require major changes in the mandates and operations of state-owned companies,” says the budget statement.
The budget statement shows that SAA will need central government support of R5bn, SA Express R1.2bn and the Post Office R2.9bn over the medium-term.* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER