Finance Minister Enoch Godongwana spelt out the sombre reality of the state of the country’s finances and its economic prospects for the year ahead and beyond in his 2022 National Budget to a makeshift National Assembly in Cape Town City Hall on Wednesday.
What was striking was his tone of pragmatism, tempered with both hope and despair. The usual overstated rhetoric of aspiration of his predecessors and sometimes his president, Cyril Ramaphosa, was muted. The handouts too were considered!
The reality is a Budget that combines a “carrot, stick and stuck” approach, which perhaps is understandable given that it resembles more a Budget of a siege economy – a modus vivendi for millions of South Africans, in the words of the minister “of more than a decade of economic stagnation”.
That the country has been stuck in an economic Groundhog Day for the past 10 years speaks volumes for the inability of the governing ANC to get on top of its stewardship of the economy and its finances. South Africans are fed up with the surfeit of apologia – state capture, 2008 financial crisis, corruption, commodity price volatility, and the impacts of the Covid-19 pandemic.
Even the impact of Putin’s brutal invasion of Ukraine on Thursday has been neutral on Godongwana’s Budget. The rise in the price of gold – $1 968.35 (R29 816) per oz at the time of writing – as investors seek a safe haven, has been offset by the sharp hike in crude oil prices with Brent Crude Oil Futures increasing by 8.44 percent to $105.01 per barrel on the day of the invasion – the highest price since 2014.
Against that the country’s metrics of shame – sustained subdued GDP growth; world-beating levels of inequality; domestic violence and abuse; rising debt burden; and high joblessness to name a few. South Africans experienced the reality of a daily diet of punishing cost of living, income disparities and dysfunctional service delivery, well before the pandemic.
Ideological in-fighting between coalition factions and policy indecisiveness have stunted progress towards more equitable lives and livelihood experience for the majority of compatriots.
There has been some painstakingly slow progress. “These interventions,” noted the minister, “cannot replace the structural changes our economy needs. Difficult and necessary trade-offs are required.” Take GDP growth outlook. A projected rebound of 5.1 percent for 2021 has now been revised downwards to 4.8 percent, reflecting “the impact of changes in the global environment, along with our own unique challenges. Real GDP growth of 2.1 percent is projected for 2022. Over the next three years, it is expected to average 1.8 percent.”
To be fair to Godongwana, global GDP growth for 2021 too has been revised downwards to a projected 4.4 percent from an earlier 4.9 percent. Even the windfall increased projected tax revenues of R1.55 trillion for 2021/22 is compromised. It comes mainly from the mining sector due to higher commodity prices.
As the minister stressed “one swallow does not a summer make. The improved revenue performance is not a reflection of an improvement in the capacity of our economy. We cannot plan permanent expenditure on short-term increases in commodity prices”.
Godongwana is also stuck with his shocking revelation that R308 billion was spent on bailing out failing state-owned enterprises (SOEs), which reduced spending on frontline services and infrastructure by R257bn since 2013. Yet the future of SOEs remains under “consideration” by Ramaphosa’s State-Owned Enterprises Council.
Another sign of Godongwana’s “tough love” policy on SOEs is the Treasury’s insistence that it would define “criteria for state funding of SOEs in 2022/23, informed by their value creation and whether they can run as sustainable entities without bailouts from the fiscus”.
The elephant in the room is Eskom whose entrenched “debt situation remains a concern for its creditors and our investors alike”. Maybe it is too economically important to fail. Its servicing cost to Treasury coffers to date is R136bn with a further R88bn until 2025/26.
Any solution is contingent to the opening up of its electricity monopoly to IPPs and private sector operators, cost containment, restructuring the utility especially its profitable entities; and improving the reliability of electricity supply.
The public debt burden too is of “serious concern” reaching R4.3trln in 2022 and projected to rise to R5.4trln over the medium-term. Debt servicing is spiralling, averaging R330bn annually. The impact on economic recovery is disastrous, and no amount of creative accounting in the figures on reducing the fiscal deficit and stabilising debt will suffice.
Targets for debt stabilisation are fine, but the opportunity costs lost top billions of rands. Given that 175 out of 257 municipalities are in financial distress, which according to a Financial Action Task Force (FTAF) report include widespread corruption and Anti-money laundering (AML) transgressions, the question remains how will the new handout of R28.9bn be held accountable?
Godongwana’s balancing act includes the carrot of a spate of handouts in tax relief, the tax-free threshold for individuals and medical tax credits, freezing any increase in petrol and diesel prices, and reducing corporation tax to 27 percent from 2023. The carrot is less generous as the pandemic recedes.
The largest allocations include R3.33triln to the social wage to support vulnerable and low-income households over the next three years; R76bn for job creation over the medium term and an additional R18.4bn for the Presidential Employment Initiative; and an additional R57.2bn for the education sector.
Other more modest allocations are for small businesses, infrastructure catalytic projects, the healthcare sector, the police and justice system, and a spate of child support and social welfare grants.
The stick remains a conundrum for the minister. Whether the Public Sector Labour Summit in March agrees to the 1.8 percent annual increase in compensation spending from R665.1bn in 2021/22 to R702bn in 2024/25, and the additional funding of R20.5bn in 2022/23 to meet the cost implications of the 2021 public-service wage agreement is a moot point. The good news is that Sars hopes to recoup R18bn in additional duties in its drive against illicit trade.
To what extent the carrot is compromised by the stick may be bemusing to most South Africans who love their boozing and smoking. Godongwana the killjoy, they may argue, has increased excise duties on alcohol and tobacco by up to 6.5 percent with immediate effect. There could be a health benefit though as the country already suffers from an epidemic of alcoholism, including foetal alcohol syndrome.
For the corporate sector, the reduction of 1 percent in corporation tax may not go far enough in mitigating the hefty increase in carbon tax from R134 to R144 and the carbon fuel levy to help address climate change. Activists will no doubt welcome this but at what cost to business, supposedly the backbone of the economy?
Godongwana’s wish-list includes greater investment by retirement funds in infrastructure investments under the provisions of the amended Regulation 28 of the Pension Funds. The minister evoked the South African reality in the adage: “You won’t realise the distance you have walked, until you look around and realise how far you have been.”
Given that the “stuck” by far outweighs the stick and the carrot, suggests that the South African journey to pre-state capture recovery still has an awful long way to travel!
* Parker is an economist and writer based in London
** The views expressed here are not necessarily those of IOL and Independent Media.