Defend Truth


No parachute for Enoch Godongwana as he stands on the edge of the fiscal cliff


Professor Daniel Meyer is Economic Development specialist and policy analyst, School of Public Management, Governance and Public Policy, College of Business and Economics, University of Johannesburg.

There is poor financial management at all levels of government, with unauthorised, fruitless and wasteful expenditure amounting to more than R100bn over time. This excludes the R331bn in SOE bailouts over the past few years.

South Africa is in the middle of a financial and economic crisis: Low economic growth, low consumer demand and spending, inflation above the SA Reserve Bank mid-point target, the JSE losing more than 13% over the past 12 months, high and still rising interest rates and a poor fiscal position for Finance Minister Enoch Godongwana.

The fiscal problem has been brewing for a while for government finances. If it were not for the SA Revenue Service’s (Sars) excellent tax-collecting results in 2021 and 2022, this revenue crisis would have been presented in the 2023 Budget speech in February.

The finance minister is now facing a budget deficit crisis, and the Medium Term Budget Policy Statement meeting, planned for October, had to be postponed to 1 November due to this crisis. 

An estimated R100-billion shortfall has been forecast. This is about 5% of the total revenue budgeted for in the 2023/24 Budget. R100-billion is a significant amount. More than 4,000 schools could be built with that money.

What is causing the fiscal crisis? First, Sars has been collecting less tax in the 2023/24 tax year – a shortfall of about R50-billion – mostly due to a downswing in the commodity cycle and the low-growth environment due largely to global conflicts and load shedding.

Second, there is poor financial management at all levels of government, with fruitless and wasteful expenditure amounting to more than R100-billion over time. This excludes the bailouts allocated to SOEs over the past few years. 

Government has spent R331-billion in bailing out Eskom, SAA, Sanral, Sasria, the Land Bank, the Post Office and Denel over the past 10 years – 55% of that amount went to Eskom.

Finally, the government’s debt has steadily increased over the past 15 years. In 2008, government debt as a percentage of GDP was only 30%. In 2023, it is 72% and rising. The repayments on the interest on this debt are R340-billion per annum – nearly R100-billion more than the annual health budget. More debt is not an option.

What are the options available to the minister of finance?

More income via tax-rate increases: This option carries little value as tax rates are already high, and any increases will create even more resistance to pay. It will also lead to further “flight” of high-income taxpayers leaving the country for lower tax environments. VAT is the most accessible tax to collect. An increase of 1% in the VAT rate will bring in an additional R30-billion of income to the government, but more is needed. A 2% increase could bring the government closer to the shortfall, but VAT increases have a massive impact on the poor. There are better options for government with less than a year before the national election. Tax increases reduce the spending power of consumers, leading to less growth and also fuel inflation.

Spending cuts: Spending cuts of about 5% across government departments, with more effective spending at all levels of government, seems to be the most viable option. Fewer SOE bailouts, less illegal expenditure and better management of finances could take the government a long way to solving the Budget shortfall. Let’s be honest – we have a bloated government sector while we should have a “lean and mean” government. Government should do more with less, as recommended in the WEF report on the “Future of Government”. The government wage bill has been increased, resulting in a Budget deficit of more than R37-billion. This wage bill needs to be reduced over time. The public sector wage bill is 14.8% of GDP in South Africa, while the OECD average is only 9.7%. Government workers make up about 18% of all formal workers. Social welfare spending has also increased rapidly since Covid, which could be more sustainable. More than 18 million people are included in the social welfare system, while 5.5 million people submit tax assessments, but far fewer actually pay tax. We need more people participating in the economy through inclusive growth.

More loans: This is not a real option, with government debt rising above 70% of GDP. Interest repayment on debt has increased to a significant 15% of the national Budget.

Other red flags that should be giving the minister sleepless nights are municipal finances, with more than two-thirds of municipalities either bankrupt or close to bankruptcy. Municipal income will be further severely impacted by companies and households turning to solar power instead of buying electricity from Eskom.

The National Student Financial Aid Scheme (NSFAS) was allocated R47-billion in 2023 to support about 1.1 million university students. NSFAS has been rocked by instances of mismanagement and this situation has impacted negatively on the student population, but also on the financial stability of many universities in the country.

The government must allocate more funding to economic development, such as infrastructural development for energy, water and roads. Such spending could facilitate faster economic growth, creating jobs and tax income over time.

Transport, value chains and logistics regarding exports have been deteriorating, which has affected the country’s ability to export effectively and to be competitive on a global scale. This has negatively affected our trade balance and income for the government. These structures and systems need to be fixed as a matter of urgency.

South Africa has moved backwards in global good governance rankings regarding the World Bank Governance Index. This affects confidence in South Africa for international investors, and risk rating agencies have already given the country (government) “junk” status. 

To survive the storms we are currently in, which are caused internally and externally, we need to focus on the following: facilitate economic growth by formulating a clear and implementable economic development plan which includes focused and effective spending on building infrastructure capacity; good governance leading to improved and much more effective expenditure of tax money; structural change in terms of SOEs, social welfare spending, logistics and budget allocations, and more focus in the Budget on economic development outcomes. DM


Comments - Please in order to comment.

  • Pet Bug says:

    The spending cuts required was much better presented by Mr George of the DA.
    E.g. a Three year wage freeze for the state millionaire management class, and reducing this bloated inefficient class. Something like R60 billion saved right there.

Please peer review 3 community comments before your comment can be posted