If the medium-term budget policy statement does nothing else, it brings home in a bruising way the parlous state of public finances. Almost every major key indicator has had to be revised in the wrong direction: economic growth has been revised down, debt is heading higher, the deficit has risen, spending has had to be curtailed and revenue is down.
It has often been said that SA’s fiscal position is “on the brink” or “teetering” or “in danger”. The policy statement makes it clear that this phraseology is now defunct. The brink is here.
The one theoretical bright spot did not turn out to be a bright spot at all. Analysts and economists were impressed with tax receipts so far in 2018 and were extrapolating a revenue overrun of R11bn for the full year after revenue collection for the first six months of 2018-2019 grew 10.7% from the same period in 2017.
The policy statement squashed this idea flat. The reason for the seeming high level of tax receipts is simply that VAT refunds have been held back. Far from a revenue overrun, the Treasury is now predicting that after a once-off payment of overdue VAT refunds, the in-year revenue shortfall will be around R27.4bn.
In the context of this negativity, the fact that no new taxes are envisaged in 2019 comes across as somewhat surprising good news. Likewise, the fact that the expenditure ceiling has not been increased is also a positive.
But behind this firm and robust decision lies a conundrum. The medium-term budget policy statement reveals that the Treasury has decided it will not increase the allocation to public sector workers, despite the fact that the three-year agreement has formally been agreed between the unions and the government.
The Treasury’s alternative is somewhat hopeful. Finance minister Tito Mboweni insists that departments need to fund shortfalls by adjusting their existing budgets, using measures like curbing overtime and “carefully managing” incentives.
The problem is that the government has been here several times before, and the result has been a disaster because instead of managing their staff downwards, typically managers have reduced capital expenditure and diverted these funds to salaries.
The result is that in several departments, notably health, hospitals have run into pharmaceutical shortages, for example.
The fact that the Treasury is now resisting increasing expenditure for public servants after years of above-inflation increases for them is no doubt a positive for public finances. But history suggests these measures can actually worsen service delivery.
Now thoroughly painted into a corner, the Treasury is looking for new options. “We need to demolish the walls that exist between the public and private sector,” Mboweni said with new determination. Yet, that option has also been floated often over the years, only to be rebuffed by union opposition, political hostility and some reticence on the part of business. It may be that this time the government really means it, and Mboweni himself certainly exudes confidence and resolution. There is definitely room for an improvement in the government/business relations.
Mboweni was explicit about attacking corruption, saying in reference to the VBS Mutual Bank scandal that the perpetrators of this “great heist” must be “locked up, after a fair trial”. Fighting corruption has become a perennial budget time promise only to be more honoured in the breach than in the observance.
The determination of SA’s new administration to fix state-owned enterprises and growing corruption does, however, seem to have ratcheted up a notch, very possibly because it has to be. After years of under-par growth, the policy statement demonstrates that the government’s fiscal space is almost nonexistent.
The budget’s biggest shortcoming is not its failure to identify the key problems. It is the lack of explicit, calculated and demarcated measures to address them. The government is largely relying on its existing structure to fix the problems that this structure created. Few will be surprised if that doesn’t work.