Mboweni claims winter is over — but the political games definitely are not
South Africa’s debt is ‘increasing at an unsustainable pace’, said Finance Minister Tito Mboweni, but the tough decisions to arrest this have been kicked into touch. It’s a sign the political contestation in the ANC is far from settled.
Much of Wednesday’s medium-term budget policy statement (MTPBS) by Finance Minister Tito Mboweni seemed to be aimed at Cabinet colleagues to bring home how bare the cupboards really are. The numbers are shocking, and Mboweni didn’t mince his words.
Economic growth for 2019 is revised down to 0.5%, just eight months after the February Budget anticipated 1.5% growth.
Tax collection falls short R52.5-billion, or 4%, of the estimated target, even if R1.37-trillion was collected in this dire economy marked by low wage settlement, fewer bonuses and higher unemployment that rose to 29.1% on the eve of the MTBPS.
Debt to gross domestic product (GDP) rises to 71.3% by the 2022/23 financial year and could reach 80.9% if South Africa remains on the same trajectory of spending more than its income.
National debt in 2019 exceeded R3-trillion, and it’s expected to hit R4.5-trillion within the next three years. Meanwhile, debt service costs are the fastest rising expenditure item, increasing by R13.7-billion until the 2022/23 financial year or almost double the R7-billion health spend increase.
“It’s not a pleasant situation,” said Mboweni, who called for concerted action – shaking the baobab, as he put it – because South Africa is standing at the edge of the precipice.
“[H]ere we stand at the end of winter. The food cupboards are almost bare. We have been shuffling about in old and uncomfortable brown shoes. Our expenditure continues to exceed our revenue. Our national debt is increasing at an unsustainable pace. The economy is not performing well.”
In the traditional pre-MTBPS briefing with journalists, Mboweni identified the debt to GDP ratio as a crucial concern, alongside leakages including malfeasance, corruption and lackadaisical governance that has led to medico-legal claims against health and police totalling R200-billion, if they had to be paid today. These were part of “a number of risks to the fiscal framework which the government has to confront head-on”.
But when it came down to taking the hard, pragmatic decisions there was a pause.
It was a déjà vu from a day earlier when Public Enterprises Minister Pravin Gordhan released the Eskom roadmap – heavy on vision, although not so much on detail – but deferred all questions on the rands and cents to Mboweni.
When Mboweni took to the podium in the National Assembly on Wednesday, the detail on Eskom was vague at best.
An additional R10-billion is earmarked for the 2021/22 financial year, possibly as another special appropriation. This allocation follows the R59-billion special appropriation currently before Parliament – Eskom will receive R26-billion before the end of the current financial year, and the remaining R33-billion in the 2020/21 financial year. Those amounts are over and above the R23-billion allocated annually for the next decade, as outlined in the 2019 February Budget.
“Eskom is a business and it must be run like a business… We cannot continue to throw money at Eskom,” Mboweni told MPs.
“Once I am convinced that the Eskom board and management has made an irrevocable commitment to implement government’s decisions and there is enough progress, we will negotiate the appropriate size of debt relief.”
The drain on the public purse by Eskom and other state-owned entities (SOEs) is real – and ongoing. Taxpayers are set to bail out SAA as its R9.2-billion loans mature over the next three years.
Official talk is about switching bailouts for SOEs to loans. Making a differentiation between equity and loans may sound good, but it hasn’t worked in the past.
In 2015, Eskom received a R23-billion special appropriation when the government sold its shares in Vodacom, and also a R60-billion loan facility. However, a few years later that loan was turned into equity, effectively cancelling any repayments – and Eskom’s bailout effectively increased from R23-billion to R83-billion.
The Integrated Resource Plan (IRP) has taken the lowest-cost route, rather than the route of least cost. As Mineral Resources and Energy Minister Gwede Mantashe has repeatedly explained, both inside and outside Parliament, least cost is not necessarily the cheapest because of social costs. That’s effectively the political contestation around job losses and retrenchment that’s playing out.
Whether Mboweni’s blunt remarks will galvanise his Cabinet colleagues into action remains to be seen.
The ANC welcomed the finance minister’s announcements, including the belt-tightening for the executive.
“Ministers must know… they are duty-bound to be servants of the people,” said ANC spokesperson Dakota Legoete.
But the MTBPS sparked a curious coalescence across ideological divides as the DA, EFF and Cosatu agreed it had failed to put the strained public finances right with a credible plan.
“To say it was a wasted opportunity is a massive understatement,” was Cosatu’s reaction.
“Government has failed to rise to the challenge. Millions of workers depend upon the state getting its house in order and turning the economy around. We are running out of time. It is clear that this cannot be left to tepid ministers any more.”
EFF Chief Whip Floyd Shivambu expressed disappointment: “There’s no plan… We as the EFF are not impressed at all.”
DA finance spokesperson Geordin Hill-Lewis said, “tough talk was not matched by tough action” or a plan to deal with the increased budget deficit, and ballooning debt to GDP that’s expected to hit 80% by 2027.
“We welcome that the minister told the truth about the horror of our situation and we welcome his tough talk on cutting the public wage bill and on the mismanagement in SOEs,” added Hill-Lewis.
IFP finance spokesperson Mzamo Buthelezi said, “Tough talk doesn’t take us anywhere – now we need action”, a sentiment also expressed by COPE leader Mosiuoa Lekota.
Freedom Front Plus spokesperson Wouter Wessels pointed out there were “very few implementation plans”, particularly on reducing the public wage bill.
The public wage bill is the terrain of political contestation across the governing ANC, perhaps even more so than Eskom, selling non-core state assets – that proposal dates back at least three finance ministers – and getting strategic equity partners for troubled SOEs.
The MTBPS push to reduce the public wage bill is setting Mboweni on a head-on collision course with labour federation Cosatu, one of the governing ANC’s alliance partners, which backed President Cyril Ramaphosa in his 2017 Nasrec ANC conference presidential bid which he narrowly won.
On Wednesday, Cosatu dismissed any attempts to change public servants’ wages.
“Cosatu rejects Treasury’s continuous attacks on the rights of nurses, teachers, police and correctional service officers, cleaners, doctors etc to earn a living wage.”
Mboweni told journalists, “We need to have a conversation with the public sector workers how in these difficult circumstances can we moderate this wage bill. It is not the equivalent of cutting the numbers [of public servants], but it is the level of the wage that is the issue.”
This talks directly to the pragmatic choices that must be made, and are not. The 2019 MTBPs continues down a well-trodden path: a hint at possible additional taxes to be announced in the next Budget, and cuts in departmental and entities’ spending.
National departments are trimming R21-billion off the 2020/21 financial year, and R22-billion the following year.
That’s nowhere near what’s needed, and to effect the additional cuts of R150-billion over the next three years, Mboweni took on government’s executives, including Cabinet ministers, premiers, MECs and mayors. It was perhaps a nod to Cosatu’s demands that executive salaries were frozen and the cost of official cars capped at R800,000 including VAT.
Only economy class air tickets would now be allowed, while cellphone benefits – these cost government R5-billion a year – are scrapped.
To make up the savings to service the national debt, in the absence of determined and pragmatic policy decisions, more cost-cutting is needed.
Cuts will hit the provinces and municipalities, respectively by R20.3-billion and R20.5-billion over the next three years, according to the MTPBS.
Western Cape Finance and Economic Opportunities MEC David Maynier was not impressed, saying he would fight to oppose these cuts:
“What makes the R20.3-billion provincial budget cut so wrong is that it is being imposed to effectively bail out zombie state-owned enterprises like South African Airways.”
At local government, all grants except the early childhood development grant would be cut according to past spending and performance.
“These reductions are likely to affect service delivery, particularly through delays in building infrastructure,” says the MTBPS, adding later:
“Larger reductions are also made to grants to urban municipalities, which have more capacity to offset the effect of cuts by increasing their own revenue investments.”
And while the parliamentary health committee is hosting public hearings across South Africa on the National Health Insurance (NHI), the MTBPS sketches a grim picture.
The costing of the NHI that was done in the 2017 White Paper is “no longer affordable”, given the current economic dire straights. And so the focus is on improving efficiencies, rerouting the savings and updating the fiscal costs.
“The revised model estimates that rolling out NHI would require an additional R33-billion annually from 2025/26. These amounts are not Budget commitments, but indicative cost estimates,” says the MTBPS, adding: “National Treasury and the Department of Health will develop a strategy to reform health grants prior to implementing NHI.”
South Africa is at a precipice. That Wednesday’s MTBPS didn’t quite match that grim economic reality to concerted action is largely due to ongoing political contestation.
But Mboweni, the finance minister who’s also a farmer, remained stubbornly hopeful:
“The winter has been long, but we must prepare for spring and reposition the republic to grow and to thrive”. DM
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