London - It’s official! Budget 2023 presented to Parliament by Finance Minister Enoch Godongwana last Wednesday is “not an austerity budget”.
South Africans can breathe a sigh of relief or agree to disagree with the minister.
But it either reflects the disconnect between the Ramaphosa administration and vast swathes of the electorate, or it marks the transformation of the minister from a frustrated technocrat and pragmatist largely in tune with the prevailing market economic orthodoxy and fiscal discipline to a trapeze artist on the highwire in Circus ANC’s dysfunctional economic stewardship desperately feigning a balancing act trying to mitigate crises and promising hope.
Millions of compatriots – whether individuals or businesses – know the reality of their daily lives exacerbated by a cost-of-living crisis.
This is worsened by the fallout of the resultant fuel and food disruptions and price rises due to the war in Ukraine, the ongoing impact of the Covid-19 pandemic, global economic shocks and especially rising inflation.
One can have some sympathy with Godongwana’s predicament.
But he has repeatedly reiterated that a large chunk of the country’s economic woes is self-inflicted, thanks to the government’s policy indecisiveness, inertia and inability to rein in entrenched corruption, solving the embarrassing and debilitating energy crisis and an ugly parade of other metrics of shame.
In a nutshell, Godongwanomics seems to encompass “increasing allocations to key frontline departments above existing baselines, moving toward a change in the composition of spending from consumption to investment, maintaining a large social security safety net, while striving for sustainable levels of debt”.
The playbook is frugal in problem solving and once again laced with endless aspirations of achievements and delivery.
Perhaps the devil lies in the detail of the cornucopia of accompanying documents and appendices.
To his credit, the minister does give stark notice that if things go pear-shaped, tough remedial measures will have to be taken down the line.
But for now, “it is a budget that makes tough trade-offs in the interests of the country’s short-and-long term prosperity”, he maintains.
“Our economy is facing significant risks. Uncertainty is on the rise. It requires us to do bold things. To put the fear of failure aside and execute the difficult trade-offs needed to get from where we are now, to where we want to be in the future.”
Whether the measures in this budget reflect these realities and the need to act boldly, as the minister asserts, only time will tell.
What is questionable is whether the measures prove to be too little too late, and whether they go far enough in the balancing act of matching the political fortunes of the governing ANC in this year of reckoning.
This is as the party gears up to its most challenging general election in its history in 2024, largely through casuistry and handouts, while resolving the real economy deficits of subdued GDP growth, rising budget shortfalls and debt servicing, corruption, a bloated public sector, high crime rate and gender-based violence against women.
The sop to South Africans is that there are no major new tax proposals because of “the improvement in revenue due to higher collection in corporate and personal income taxes, and in customs duties”.
Tax revenue collections for 2022/23 are expected to total R1.69 trillion. Over the medium term, revenue projections are R6 billion higher than the estimates of the 2022 MTBPS. There is R13 billion of tax relief and credits, including those linked to the high cost-of-living, rising inflation and energy costs.
The elephant in the room is that of burgeoning social development spending allocated at R378.5bn with a range of grants. This is higher than the country’s R340.5bn debt service costs. It raises the question whether expanding the safety net of a growing welfare state is affordable, sustainable and poses the danger of nurturing a culture of dependency, which is against the natural work ethic of South Africans over the years especially during the era of the apartheid economy.
That was done as an act of survival.
In a post-1994 era it should be for self-betterment, poverty alleviation, equality in opportunities and access to basic services, and so on.
This must not distract from social spending in line with inflation for the old of age, the disabled, vulnerable, disadvantaged, social security and child credits, which must always be the bedrock of economic transformation.
It is the additional and new areas of grants being handed out to other groups ostensibly over the past two years that is merely fuelling the disequilibrium in state finances.
Godongwana was coy about the revenue and expenditure metrics in the budget.
Yes, the revised revenue for the next four years is on an upward trajectory from the revised figure of R1 892.7bn for 2022/23 to a projected R2 225.3bn in 2025/26. But so is the spending burden from R2 168.8bn to R2 477.4bn in the same period – which leaves an estimated rising budget deficit over the next three years.
The government debt outlook is also a concern. The gross debt stock is projected to increase from R4.73 trillion in 2022/23 to R5.84 trillion in 2025/26. And because debt is high, the debt-service costs are also high.
The above measures and bold actions become meaningless and ineffectual if the economy cannot deliver sustained higher real GDP rates.
The fact that the Treasury upwardly revised its GDP estimate for 2022 to 2.5% from 1.9%, is no consolation for the fact that its medium-term growth outlook has deteriorated.
Real GDP growth is projected to average 1.4% from 2023 to 2025, compared with 1.6% estimated in October.
It’s a vicious circle. Low growth means reliance on higher revenues which are not guaranteed depending on global and national economic conditions, and a higher level of extortionate sovereign loans, even the so-called concessionary ones from the multilaterals.
In the more detailed Budget document, Godongwana merely reiterated that he aims to raise arguably cheaper funds through alternative funding sources in 2023/24, especially through a rand-denominated Sukuk issuance.
But then the Treasury has been singing the same tune for the past five years, which has left potential investors baffled.
That Budget 2023 is defined by several key metrics is not surprising. These include ring-fenced inflation-linked higher social development spending, R14 billion over the medium term to fight crime and corruption, increased resources to SARS to improve its capacity and infrastructure, further enhancing the anti-money laundering regime in line with the provisions of the Financial Action Task Force (FATF), and the allocations to SAA and the Post Office albeit accompanied by strict conditions to ensure sustainability, accountability and transparency, which if not met, the money will not flow.
Godongwana’s Budget’s Achilles heel could very well turn out to be the two issues that dominated his speech – Energy and Eskom, and public sector wages.
For the latter, the minister refuses to pre-empt the outcomes of current wage negotiations, stressing that “this and future wage negotiations must strike a balance between fair pay, fiscal sustainability, and the need for additional staff in frontline services”, warning that “an unbudgeted wage settlement will require very significant trade-offs in government spending because the wage bill is a significant cost driver”.
It remains to be seen how Cosatu and other unions react to the Presidency’s proposals to achieve savings by rationalising or closing public entities.
The Treasury’s debt relief plan for Eskom is protracted and is no panacea for solving the utility’s problems.
Some R337bn of Eskom’s debt is already government guaranteed and the aim is for a total debt-relief arrangement for Eskom of R254bn over the next three years governed by “strict conditions to safeguard public funds”, and pre-empting the need for further borrowing during the relief period.
Municipalities owed Eskom R56.3bn at the end 2022, and the debt is rising. Most of them cannot afford to pay back the debt, and yet the playbook is “we are working with Eskom to provide a solution to this problem”, which frankly has been festering for almost a decade.
Short of any privatisation initiatives in South Africa’s energy production mix, Godongwana is giving tax incentives to encourage businesses and individuals to invest in renewable energy and increase electricity generation.
From March 1, 2023, businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewables.
Redemptive measures and bold actions are only effective when they translate into concrete real economy results and delivery.
The ANC has long lost that mojo since Madiba, who showed that the new democratic nation can rise from the ashes of apartheid to effect equality, freedom, dignity and transformation!
Parker is an economist and writer based in London
Cape Times
* The views expressed do not necessarily reflect the views of IOL or Independent Media.