Highlights from the BusinessLIVE medium-term budget debate

With less than a week to go before finance minister Enoch Godongwana delivers his medium-term budget policy statement (MTBPS), BusinessLIVE hosted a debate to dive into some of the key issues that may surface. The discussion was moderated by Khaya Sithole, a chartered accountant and academic, who was joined by Michael Sachs, former budget office head at the Treasury, Alexforbes executive chief economist Isaah Mhlanga, and Business Day editor-at-large Hilary Joffe.

The panel discussed a range of matters, and below are some of the key takeaways.

1. State of global affairs

When the finance minister delivered his budget statement in February, the government did not plan for any disruptions brought on by a potential conflict between Russia and Ukraine. This, despite Russia invading its eastern neighbour the very next day. 

Now, amid fears of a global recession, Joffe hopes Godongwana will factor in external elements when he delivers his MTBPS .

Still, Joffe described SA as “looking pretty benign” partly due to a revenue overrun owing to a commodities boom. She hopes the government has given some thought as to how long that might last.

2. Grants and growth

The panel seemed to agree that a basic income grant (BIG) is not a solution but a temporary relief. “The success of a state,” said Mhlanga, is not measured by how many people are on social support by the state; it is on how many people can find jobs in the open market in an economy that is operating optimally.”

Sachs acknowledged that the grant helps alleviate poverty, but ultimately described it as a “defeat”. When the government finds itself in a position unable to grow the economy and create employment, it simply says, “We’re going to hand out small amounts of cash.”

Neither, however, are under the impression that the temporary R350 grant introduced during the pandemic is going anywhere soon.

3. The costs of inflation

In a year that has already seen inflation climb by almost three percentage points, there have been calls for some relief. The government introduced a temporary cut to its fuel levy when the Russian invasion of Ukraine pushed oil prices to their highest level in a decade.

Sachs and Sithole do not believe such a cut would go far, given that it essentially starves the fiscus of financing other items.

And given the global cost-of-living crisis that has developed partly as a result of the energy concerns, Joffe does not believe that monetary policy is such a controversial topic anymore. At least not at home. “At the moment,” she explained, “I think most people are asking central banks to control inflation.”

Mhlanga added that structurally lower inflation, as the Reserve Bank has hinted at, may come with significant benefits. Given the “inflation premium in our bond yields”, lower expectations “means you then save on the debt service costs”.

4. The public sector wage bill

Often described as bloated, there is already an expectation that Godongwana will pencil in 3% for public-sector wage increases. However, Sachs, who published a paper on the matter earlier this week, said such consolidation comes at a price. 

As opposed to a more efficient public service, Sachs believes frontline service will bear the brunt, as opposed to political and executive positions.

5. Energy security

Ensuring a stable supply of energy is key to getting the economy growing again, said Sachs. The Treasury's role is to rescue Eskom from it's growing mountain of debt. “While it remains bankrupt we are limiting the scope it has to mobilise its own resources to invest in solutions to the problem of load-shedding,” said Sachs.

Joffe said there were a number of upsides to relieve the power utility of at least some of its debt. Doing so would not only provide Eskom the breathing room to support private investment in renewables, but could also lower the government’s borrowing costs given the uncertainty around the over R400bn guaranteed debt.

Mhlanga agreed and said taxpayers simply could not escape from paying for Eskom’s debt. However, should it be moved onto the government’s balance sheet, the power utility might become sustainable and guarantee energy supply, which might in turn reduce some of the costs South Africans are bearing. 

You can listen to a recording of the discussion here:

vandermerwep@businesslive.co.za