‘No appetite’ for tough budget decisions


After the publication of the medium-term budget framework (MTBR), it is clear that Minister Enoch Godongwana has no appetite for making difficult decisions, especially not with a national election around the corner.

Experts believe that if it continues in this vein, South Africa will be headed for an even more serious financial crisis, which cannot be easily reversed after the election.

Earlier this week, Godongwana refrained from making important decisions regarding enormous budget bills, when he announced the MTBR. He did reveal that the state’s budget deficit had increased by R54.7 billion.

Prof. Raymond Parsons, economist at the North-West University’s business school, says the financial predicament that Godongwana has exposed has painted a “realistic but vulnerable fiscal picture” of South Africa.

“Although it may have been inevitable that the MTBR would allow public debt to rise even further, it should be seen as a temporary measure to be corrected by appropriate economic steps,” says Parsons. However, he says the budget speech makes no mention of exactly how this will be done.

Kim Silberman, economist and macro strategist at Matrix fund managers, believes Godongwana’s speech showed that the national treasury is doing its best to counter increasing political pressure to increase spending.

She says Godongwana was not flippant when he said South Africa’s fiscal situation was “unsustainable” and the government’s spending “unproductive”.

However, the economist Dawie Roodt disagrees and says it is clear to him that there is little political will to reverse the country’s financial situation.

“To remedy the situation it is necessary to make unpopular decisions, which Godongwana is not prepared to do at this stage.”

According to Roodt, the reason for this is that the election is around the corner.

“Godongwana’s first priority lies with the ANC, not the country. Should he cut spending in certain areas or take hard decisions, his place in the government will be in jeopardy.”

Roodt believes many ANC cadres would like to be re-elected in order to have access to the state treasury.

“However, a Minister of Finance who spends less money is not re-elected and then there is even less money to waste.”

He also does not have much hope that after the election, if the party is still in power, the ANC will make substantial plans to save the country’s finances.

“It doesn’t matter what is in the budget, if the ANC comes back to power after the election, we will not be able to turn the ship around.”

Godongwana said in his speech that the most efficient way to fund the government at this stage is to broaden the tax base.

By doing so, however, Godongwana places himself in a political dilemma, says Roodt.

“If more people have to pay taxes, it means more poor people will have to pay (which can lead to them withdrawing their support from the party). Real widening is therefore not going to go down well politically.”

Rather than collect money from taxpayers, Roodt believes that protection services for “quasi-important people” should be cut.

He says the Covid-19 social assistance allowance of R350 per month, which has been extended for another year, will go far beyond the billions of rand spent on the police’s VIP protection unit.

Little word or deed

All the economists agree that a clear fiscal plan to reduce deficits and government spending over time is still missing.

Silberman says the treasury will have to make a decision by 2025 on how to limit spending on, among other things, social grants and the provision of free basic services, “otherwise South Africa will have to introduce increasingly unorthodox and far-reaching measures to curb public debt. “

Roodt says Godongwana will already have to account for this at the next budget speech in February.

“I suspect the minister is going to trip around like a cat on a hot plate. He will not be able to postpone certain difficult decisions any further.”

According to Roodt, one of the important elements that Godongwana will have to pay attention to next year is the fact that local governments are collapsing financially.

Eskom has granted R254 billion in debt relief over the next three years to almost 30 municipalities.

“He will have to say what his plan is with this, as well as with Transnet and all the other struggling state institutions. Where is all this money for lifebuoys going to come from?”