LEON LOUW: Budget gets a six out of ten

The most exciting aspect of Wednesday’s budget is what it lacks, especially nothing being budgeted for the Terrible Twins — apartheid dinosaur state-owned enterprises (SOEs) and post-apartheid dinosaur National Health Insurance (NHI). Never before has so little been done to achieve so much.

The boring parts are slightly more spending, slightly more tax, slightly more deficit, slightly more this, slightly more that, slightly more whatever. The deficit is up a slightly, so government debt is the most it has ever been and consumes 20% of the budget. At least finance minister Enoch Godongwana managed to keep the capital portion of debt steady — no small achievement.

Red tape and bureaucracy are not decreased despite multiple promises. Zero-based budgeting remains a pipe dream. Slightly more tax adds one day to Tax Freedom Day in 2025 — the day until which the average person works notionally for government. The proportion of the economy (GDP) consumed by the government can be thought of as how much of the year people work for government instead of themselves. According to the world Economic Freedom Index, later Tax Freedom Days prevent prosperity.

The final budget is better than the February 19 non-budget, which had Tax Freedom Day two days later, according to Freedom Foundation statistician Garth Zeitsman, who has calculated it for 30 years.

Since the budget lacks provision for it, expropriation without compensation might be moribund. Oh, wait. Because there will be no compensation, will it be free? In Never Never Land. Litigation would cost the government billions.

Incidentally, most people presume expropriation without compensation will be racist theft of “white” farms. That is too obviously unconstitutional to be a real threat. Losers in the real world have always been and will remain poor black people who lack the protection of title deeds. Their land is routinely expropriated “in the public interest”.

Nothing is budgeted for NHI other than to improve existing healthcare infrastructure. The absence of NHI is appropriate because no-one, neither the health minister nor the authors, have the slightest idea what it means, let alone what it would cost. Since “healthcare” is undefined, the NHI notion is vacuous twaddle. The best healthcare for everyone would cost more than the entire R7-trillion economy. The budget relegated the NHI fantasy to the No NHI trash heap.

Godongwana said extra revenue is needed for unexpected expenses. Unexpected? Really? He seemed surprised by a larger than expected government wage bill. He did not query increased social grants and perpetuation of the five-year-old “temporary” Covid fund.

Instead of recognising the national shame of 8-million taxpayers supporting 28-million social grant recipients, he seemed proud of the impact of anti-employment labour policies. He appeared to appreciate that he could not increase revenue with higher taxes because we are at the top of the “Laffer Curve”, according to which there are two tax rates that generate no revenue — zero and 100%.

Higher tax rates increase revenue from zero to a peak where we are now. Thereafter, higher rates drive revenue back to zero. The only way for us to increase revenue is to grow the economy.

At 32% of the budget, the government has the world’s largest percentage wage bill for countries with a similar-sized economy. There should be a purging of the less productive employees, who will be more valuable in the private sector.

In addition to ghost employees identified by the Treasury’s spending reviews, there might be millions of phantom social grant recipients. Identifying government apparitions should be prioritised and outsourced.

According to the Fukuyama value for money metric, our government is the world’s worst performer and has seen the fastest decline for any democracy.

BEE

There has been no real-term per capita income growth since 2007 when BEE started in earnest, and black unemployment has risen from 6-million to 11-million in spite or because of R3.5-trillion going to black-owned enterprises. The worst victims are, as under apartheid, poor black people.

The BEE loss is the surplus paid by government to BEE suppliers, which ranges from 11% to 25%. Those who pay are the poor. At the high end, instead of four new clinics they get three. Instead of 100 RDP houses, the homeless get 75. And so on. Many beneficiaries are unproductive elites gaming the system.

While the above concerns were not addressed in the budget, they should be exposed in the Treasury’s “spending reviews”, about which Godongwana had much to say. Since he said immense waste has been identified by the 240 reviews since 2013, it is unclear why there was not a commensurate spending cut. Half-decent reviews and cuts would achieve a far earlier pro-growth Tax Freedom Day.

The most obvious and popular way to cut spending would have been the abolition of most government departments and ministers. At 32 we have twice as many cabinet ministers as comparable countries. China, with 25 times our population and 45 times our GDP, has 21 departments; the US 15; Switzerland 7; Zimbabwe 20; Russia 22; Sweden 11; Japan 11; Brazil 23; and UK 24.

SOEs accounted for R123bn excess spending; four times more than the R28bn expected from the unpopular VAT increase. SOEs drained the fiscus of R460bn over the past nine years. Most SOEs are apartheid dinosaurs. They should be given to employees and managers to enrich and empower them. Let those directly affected decide whether to be self-standing enterprises or to seek private sector partners.

Government aggregate waste exceeds the deficit of R258bn. The R800bn uncollected by the SA Revenue Service would also be more than enough to eliminate the deficit, reduce VAT and celebrate far earlier Tax Freedom Day.

The budget overlooked not only opportunities to cut spending, but to increase revenue, even with far lower taxes. The government could, for instance, sell much or all of its superfluous land. My own estimate is it owns more than 25% by value of all land, enough of which is superfluous for it to give every landless person a private plot. If sold slowly, it could cut taxes by 10% for many years. If sold quickly, it could create a sovereign wealth fund.

There is superfluous land in almost every department agency. The only substantial assets left in SA Airways is superfluous land near airports. Eskom, the railways, the roads agency, the defence department and the land trust all own superfluous land. Every department at all three levels, and nearly every organ of state, owns land, of which most have no record. There are land audits, but none accounts for more than a fraction of what is available. Councils are best placed to make estimates by assessing untaxed land.

How should we score this budget if perfection is 10 and horrific zero? That most changes are slightly negative suggests four out of 10. The exclusion of NHI and SOEs, with free competition and private participation added, is seismic. That and the commitment to implementing spending reviews adds three points. Failure to utilise other revenue sources loses one point, for a net score of six out of 10.

• Louw is CEO of the Freedom Foundation SA.