HERMAN MASHABA: A new, post-coronavirus budget is essential for SA’s recovery
How will the Covid-19 benefits and restarting the economy be funded, given that we are solely reliant on foreign funding?
Last Friday, finance minister Tito Mboweni made the welcome decision to retable the national budget in parliament. The budget adopted prior to Covid-19 becoming a pandemic is clearly no longer worth the paper it was printed on due to significant expenditure aimed at combating the coronavirus.
Aggressive measures have been put in place to support the efforts of healthcare personnel, law enforcement agencies and those dependent on social grants.
What remains unclear is how the budget will address the competing needs of high levels of unplanned additional expenditure, major declines in government revenue, and an economy that faces the prospect of a 5% contraction in economic growth.
Beyond these measures of clarity, a budget that has changed without transparency is ripe for the corrupt in our government to loot with impunity. We have already witnessed the theft of food parcels by councillors around the country, can you imagine the potential of billions of rand being moved around a budget without public scrutiny?
Mboweni should address the following:
Financing the budget
Budgets are prepared with the assumption of revenue derived in the prior financial year, factoring in the increases imposed. It is clear that revenue generated in 2020 will be significantly less than 2019. Income tax and corporate tax revenue streams will take a huge hit from the lockdown and its gradual easing in the months ahead. VAT, the fuel levy, sin tax and numerous other revenue streams have been hammered. The question that arises is what the size of this revenue gap in the budget is and how it will be addressed.
Internal budget appropriations
It is clear that large sums of the budget have been appropriated to finance the additional measures required to combat the impact of Covid-19. This is necessary, but where are these funds coming from? It would be foolhardy to lose sight of the fact that the electricity crisis has not gone away, our failing education system will face enormous pressures to save the academic year, and our cost of borrowings is set to increase further.
Borrowing to balance the budget
With the country having being downgraded to junk status in March, we are now solely dependent on institutions such as the World Bank, the International Monetary Fund (IMF) and the New Development Bank. The minister has already been clear that most of the R500bn relief package is internally funded. So where does government intend to borrow from, to what extent and under what conditions?
These are critical questions that require clarification in an environment of a heavily divided tripartite alliance. The director-general of the National Treasury has already confirmed that negotiations with the three lenders are underway, but nothing has been signed yet. He even stated that negotiations with the World Bank might take five to six weeks to conclude. When the president presented his R500bn stimulus package on April 21, the impression was created that the funds were already in the bank, creating euphoria to a vulnerable nation looking for good news.
Economic reform and radical economic transformation
In his address to the nation, President Cyril Ramaphosa was clearly balancing the internal divisions within the ruling party by referencing these two concepts together. But the time for this kind of ambiguity is long gone. Our economic recovery depends on a clear picture emerging from the retabling of the budget. Decisions around state-owned enterprises (SOEs), such as SAA, cannot be left to our imaginations and speculation as to what the denying of the R10bn bailout means.
Failing SOEs had no place in our fiscus over the past few years; it would be sinful to continue bailing them out in a post-coronavirus world.
Similarly, we cannot afford to continue with the public-sector wage bill we have. For years it has swelled to accommodate the need for cadre deployment to appease factions within the ANC. SA’s public-sector wage bill stands at 35% of our national spend, tripling from 2006/2007 to 2018/2019. Over these 10 years government employees rose from 170,000 to 1.3-million. If public-sector salary costs had been controlled to rise at the cost of inflation this item would only constitute 22% of the annual budget today — R270bn less per year.
Nor can we continue with a cabinet of 65, their entourages, security, homes, vehicles and VIP protection.
A budget to forge a new economic approach
Our ability to emerge from Covid-19 and put in place measures to resurrect our economy will determine the level of long-term suffering we face. A new budget must make it easier to do business in SA. Major tax breaks will be necessary and incentives created for new business to be set up, for staff retention, and for the long-term employment of more people. With an already declining revenue envelope this will be the major challenge for the governing party, going against its very nature.
Relaxing labour laws
For years in SA the unions in the tripartite alliance have secured comfortable labour laws and practices that lock the growing number of unemployed South Africans out of the economy. With the unemployment crisis on our horizon and millions more expected to join the ranks of the unemployed, this has to change.
The finance minister needs to send a clear signal to the country, and especially business, that not only do they not need to retrench employees but they can hire more in time without having to contend with one of the most stringent labour regimes in the world, particularly relating to small, medium and micro-sized enterprises.
Mboweni faces an unenviable task that is bound to generate strong opposition whichever direction he follows. In the past he has been left isolated to take the arrows of the tripartite alliance. For the kind of financial reforms needed in SA, with this new budget we need the president to get behind his finance minister and put the people of our country before the factional interests within the ruling party. The days of straddling the fence and appeasement are long over.
• Mashaba, a former Johannesburg mayor, is founder of The People's Dialogue.