If you ran your household finances like government runs the country’s money, your bank would shut your accounts faster than you could say “Bosasa”.
South Africa’s 2019 Budget reads like a horror story of a country that for too long has been spending more than it earns and has finally come to the realisation that if we don’t either earn more and cut our costs, we will soon have the sheriff (in the form of the IMF) knocking on the door.
First, though, it’s going to have to convince ratings agency Moody’s, the last of the Big Three which still ranks us as investment grade, that it can repair its finances. It may just have run out of time.
The country’s finances are in a mess, and while there are some brave efforts by the finance minister to trim expenditure by allowing the early retirement of older civil servants and forcing MPs and senior government employees to accept wage freezes, it's little more than a symbolic gesture.
“As a gesture of goodwill, members of Parliament and provincial legislatures and executives at public entities will not be receiving a salary increase this financial year,” Mboweni said. During his tenure at the Reserve Bank, he opted to forgo an increase one year as a gesture towards lowering the pay gap at the institution. But it may be too little too late.
In December 2018, there were 126,710 public service employees between the ages of 55-59. By allowing a quarter of them to go early and then become the problem of the Government Employees Pension Fund, the state intends saving about R27 billion over three years. But it’s still not enough to have any real impact.
Simply put, the budget doesn’t go far enough in terms of the need to radically restructure government and the role it plays in the economy.
A staggering 34.4c out of every R1 of government expenditure goes to salaries – that is about R600 billion a year. That covers pay for important people like doctors, nurses, police officers and social workers – but also for those in cushy diplomatic postings, as well as scores of officials in government departments that are superfluous to our needs.
Not to mention the massive VIP protection budget to guard the squad of ministers and deputies that are whizzed around the country at taxpayers expense, either in superfast fuel guzzling SUV convoys or in SAA business class.
It’s widely believed the President intends reducing the size of his cabinet following the May elections, but budget documents give no inkling that is on the cards. However, National Treasury officials have been doing calculations on what cutting departments and in some cases deputy ministers from smaller departments could save.
In the meantime, the weighty 900-page Estimates of National Expenditure document continues to make provision for the same number of departments and only marginally fewer civil servants over the next three years.
Another contentious element of expenditure is the more than R200 billion a year we pay to service the national debt. That’s about R1 billion every working day. That amount is projected to increase by 21% over three years to R247.4 billion by 2022.
Raising tax rates over recent years has not had the positive impact Treasury hoped it would.
High rates of emigration of wealthy individuals as well as a slow economy and no doubt some creative structuring mean that tax revenue as a proportion of GDP has started to decline. Hence the decision to not increase any category of taxation. However, leaving tax brackets unchanged means government will raise R12 billion more this year than last, assuming those in work get inflation-related increases this year.
Much is made of a re-invigoration of SARS and the appointment says Tito Mboweni of a new commissioner, “in the coming weeks.” There is also an admission that SARS has lost ground in its battle against tax dodging by amongst others, cigarette smugglers, while the closure of the large business unit during the time of former commissioner Tom Moyane will be reversed and new expenditure will strengthen IT teams and infrastructure.
There are predictable, above inflation increases in so called sin taxes and the introduction of the carbon fuel tax from June means a series of fuel price increases between April and June totalling 29c/l for petrol and 30c/l for diesel.
At least there is an admission that SOEs threaten the entire economy.
Rather than a bailout for Eskom, Treasury will provide it with R23 billion a year over the next three years for financial support. It’s an elegant way of providing Eskom with a get-out-of-jail card without government directly assuming any more of its debt and it comes with a demand from National Treasury that will be applied across the rest of the public sector.
The appointment of a Chief Reorganisation Officer, not only at Eskom, but any government department that asks for help funding operational costs will be expected to do the same. Government wants to end the practice of issuing guarantees, instead it wants to instil greater private sector discipline by bringing in private sector players.
Robbing Peter to pay Paul.
This budget starts that process.
It’s a heck of a lot better than robbing Peter to pay Atul or Rajesh.
If there is one upside, it’s the commitment to re-establish the ability of SARS to do its job, force government departments to be more accountable for the money they spend and to adjust their plans if they can’t make ends meet. But it’s a long and torturous road without the benefits of economic tail winds to boost confidence.
And it’s probably not going to be good enough to stave off a downgrade.
Bruce Whitfield is a multi-platform award-winning financial journalist and broadcaster.
Also from Bruce Whitfield: