The Minister made a serious and sobering reference to this fresh development in the global capital market. Ironically, his primary target was the majority of his fellow Cabinet Ministers, the President and his party’s fellow members of the Parliament (MPs) who have proved obstinate over the past seven years – all in the face of irrefutable facts about the loss of investor confidence and evident fall in GDP growth, from the high of 4.2% in 2009 to the current estimated level of 0.5% per annum.

The “statist approach” to economic policy, led by the core leadership of the SA Communist Party in the Cabinet, since the inception of the Zuma Administration in 2009 managed to sideline the private sector, capture the institutions of the state and state-owned-enterprises (SOEs), all for their self-interest and political patronage. As a result the balance sheets of the SOEs were hollowed out, their financial sustainability became dependent on the National Treasury’s bail-out, and/or rising guarantees. Consequently, the contingent liabilities of the National Treasury kept rising alongside its public debt. Despite two credit-rating downgrades during 2012 to 2105 period, the Cabinet remained defiant, and oblivious to the socio-political consequences

This defiance peaked in December 2015 when the then Minister of Finance, Nhlanhla Nene, was widely reported in the media as having refused to accede to the President and his core political supporters, and he was then unceremoniously sacked and replaced by an unknown back-bencher MP, Des Van Rooyen. This blatant mid-step by the President galvanized some elements of the ruling party together with a core of the private sector business leaders, led by the banking sector chief executives. Within three days, their intervention, market reaction and the huge public outcry compelled the President to replace Mr Van Rooyen with Mr Pravin Gordhan who had established his credibility as the Finance Minister in President Zuma’s first administration during 2009 to 2014. Moreover, Mr Gordhan has an impeccable anti-Apartheid credentials, and is known for his integrity and patriotism. As the head of SA Revenue Services (SARS), from 1999 to 2009, he enjoys much credit for his turn-around of the organisation into an efficient and globally competitive revenue collection office.

Against this backdrop, the Minister was resolute in rallying the country’s full capabilities to avert a junk-status downgrade. To this end, he had engaged a select group of financial sector and other CEOs to seek advice – something which had not happened for the past decade. He had also managed to form a sub-committee of sympathetic ministers, under the chairmanship of the Deputy President Ramaphosa, to manage the step-change in Cabinet approach and implementation.

At the time of finalizing his Speech, although he had not managed to secure full support for his complete package of policy measures, he had received enough political backing to announce a change of course in government policy going forward. So, he re-affirmed the centrality of the National Development Plan (NDP) – a much neglected private-sector friendly policy framework adopted nearly five years ago. The ‘statist core within the Cabinet” had managed to relegate the NDP to oblivion. More expressly, the Minister re-established the pivotal role of the private sector for turning the economy’s performance around and generating employment. He confirmed the government’s commitment to find operational and equity partners for the SOEs, as a starting point so as to re-build the viability of these entities, and raise their market and developmental value. His emphasis on governance suggests a commitment to employ board members who are competent, and top management with appropriate sector skills and experience.

All in all, the Minister devoted more than 50% of his Budget Speech to convince the markets that GDP growth is going to be re-established on a sustainable path, driven by a new surge in private sector participation and enhanced by a new modus operandi within the public sector. He was clear that this would take time to put into action over the next 12 to 24 months. Implementation, and not talk, will remain his urgent short term guide.

On the fiscal front, then, he focused on delivering a conservative, yet prudent, revenue-expenditure balancing act. He revised down the Oct 2015 Medium Term Budget Strategy estimates of his predecessor to bring down fiscal deficit to below 2.5% of GDP over the next three years, trim public employees by nearly 20,000, and cut down on the public sector wage bill. Public debt-GDP ratio is set to fall below 45% over the 3-year period. For the first time in 8 years, the primary balance is set to be positive. General government expenditure will rise by less than expected inflation over the medium term – in real terms, then, government consumption expenditure is to contract.

Despite popular expectations, he did not resort to radical and substantial tax hikes. Whilst neither VAT nor income taxes per se were increased, the taxes nonetheless were raised on some categories of expenditure such as soft (sugary) drinks, plastic bags, and fuel levies, together with ‘sin taxes’. Bracket-creep adjustments were partial and as such effective personal income taxes were raised. For the rich and upper income groups, the rate of capital gains tax was raised, as did the estate transfer duties. These enhance the progressiveness of the tax system overall without unduly compromising growth prospects.

In the interests of equity, high levels of social spending were maintained. The Minister re-affirmed commitment to further reforms such as the National Health Insurance and comprehensive social security reform. However the emphasis was on phasing them in within the available resource envelope.

All considered, however, the 2016 Budget was by no means an austerity fiscal package. But it was a measured, conservative, and only mildly contractionary budget. After all, for an economy already under severe stress, any further fiscal contraction would tip the economy towards recession. That would not be helpful for averting a credit rating downgrade. And, by potentially igniting additional social tension, it could even worsen the country’s creditworthiness. DM