Minister of Finance Malusi Gigaba. Picture: MASI LOSI
Minister of Finance Malusi Gigaba. Picture: MASI LOSI

At first glance, it looks a good thing that the Treasury has wrestled the government back onto the track of fiscal consolidation. It is certainly a positive development that yet another grab at power and resources by President Jacob Zuma, whose intention had been to announce free higher education ahead of the ANC national conference, has been neutralised by the pushback from society and from the market. That plan, although still in play, is on the back burner for now.

Since the disaster of the medium-term budget policy statement a month ago, Finance Minister Malusi Gigaba and top Treasury officials have been in intense interaction with investors and ratings agencies. In attempting to stave off a double downgrade, Gigaba — with the consent of Zuma — promised to bring in a new deal in February that would involve slashing budgets and raising taxes.

The plan became public knowledge on Monday in a statement issued by the Presidency, promising to restore fiscal sustainability and stabilise debt through R25bn in expenditure cuts in 2018-19 and R15bn of tax increases. As last February’s budget had already pencilled in both tax increases of R15bn and expenditure cuts of R31bn, this means that in the coming year, tax revenues will rise by R30bn and government spending will fall by R50bn.

Having missed his prime opportunity on October 25, Gigaba now has two weeks to draw up a new budget framework if he is to meet budget preparatory deadlines. By mid-December, when the Christmas recess begins, the February budget must be finalised. But although fiscal consolidation is now back on the agenda, the indecisiveness that plagued the period before the medium-term budget policy statement has been replaced by a headlong rush into coming up with a new set of numbers.

What will the effect of all these changes be?

The first issue will be what is to be cut from expenditure. The R31bn spoken of last February has already been factored into the departmental baseline amounts. But R25bn still needs to go. Under scrutiny now are infrastructure budgets of municipalities and other areas of public investment such as school building, provincial roads and housing.

Austerity like this will most certainly further damage SA’s growth prospects. If growth is not restored or is choked off, SA faces being caught in a cycle of low growth and rising debt in a context of rising unemployment and hardship.

Public sector wages, which have since 2010 increasingly crowded out spending on other areas and brought imbalances into the budget, look unlikely to be frozen and even less likely to be cut. There is no appetite in the government for a fight with the unions. Wages, which are pencilled in to rise 7.3% in 2018, can be expected to do at least that.

On the tax side, some kind of radical measure is needed. Either a 1% increase in VAT or at least a 1% rise in personal income tax is needed to get the quantum necessary to come close to the R30bn mark.

Austerity like this will most certainly further damage SA’s growth prospects. If growth is not restored or is choked off, SA faces being caught in a cycle of low growth and rising debt in a context of rising unemployment and hardship.

It is a frightening scenario and illustrates the complexity of managing public finance and finding the right budget balance.

It is in this space — of managing public finance — that concerns are mounting. While Zuma’s free higher education populist adventure was headed off, he has set himself up as the ultimate authority on the budget, even if he cannot exercise complete power over resource allocation right now.

And as the Treasury chops and changes its stance from month to month, it is hard to escape the conclusion that its consistency and good sense is slipping away. It is alarming that in October it blew out the budget deficit and that in November, it has capitulated and proposed austerity. The overwhelming impression is that of shuffling the deck chairs on the Titanic.

The careful and considered approach to public finances, underpinned by a commitment to improving the lives of all South Africans, is now lost in the growing noise and confusion.

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