The medium-term funds coverage assertion introduced by South Africa’s finance minister, Enoch Godongwana, to parliament on 1 November 2023 is meant to supply a preview of presidency’s public finance plans over the following three years. It doesn’t truly commit authorities to something, both in regulation or in follow. However, it’s a essential doc as a result of it presents what the Nationwide Treasury intends to be the broad, monetary basis for the functioning of nationwide, provincial and native governments within the close to future.
This 12 months’s assertion is especially essential for 2 causes. The primary is that South Africa’s fiscal state of affairs is arguably at its worst within the post-apartheid period. The second is that any selections taken, particularly concerning the 2024/25 fiscal 12 months, might have an effect on how South Africans view the present authorities when voting in subsequent 12 months’s elections.
The essential background to this 12 months’s assertion is that South Africa’s nationwide debt ranges relative to the dimensions of the financial system have elevated considerably since 2008. The assertion emphasises that the rise was roughly 47 share factors from 2008. The three major causes are the world monetary disaster that began in 2007, continued gradual financial development partly on account of state seize and energy outages, and the COVID-19 pandemic.
Extra causes embrace decrease tax assortment, different main expenditure will increase such because the “free greater training” coverage introduced unexpectedly on the finish of 2017, and giant transfers to the state-owned energy utility Eskom in response to its worsening monetary place.
As issues stand, nationwide debt is anticipated to succeed in virtually 75% of GDP by subsequent 12 months. Earlier than the COVID-19 pandemic such ranges would have been thought-about unsustainable by many economists and worldwide monetary establishments. The sustainability of nationwide debt – how a lot a rustic can borrow with out resulting in a disaster later – drives a variety of eager about nation’s public funds.
But it surely’s not a science. What was virtually unthinkable about debt ranges earlier than the COVID-19 pandemic has now turn out to be virtually regular. Many nations have skilled giant will increase of their total debt ranges and the resultant debt service prices.
Some so-called radical economists declare that there are few limits on authorities expenditure. However that is, sadly, a luxurious that might solely be true for a lot wealthier nations with better financial and political energy – just like the US.
On the opposite aspect of the spectrum, current scaremongering statements that the nation might “run out of money” are absurd and deceptive.
The query for South Africa is what to do about excessive and rising ranges of debt. A sustainable debt path isn’t nearly decreasing debt to a specific degree. The method of the way it’s finished can be essential. Slicing spending in a means that creates social hurt and reduces financial development is self-defeating. Elevating taxes an excessive amount of can be counter-productive. However letting debt rise indefinitely will imply borrowing prices turn out to be unimaginable to fulfill with out dramatic spending or taxation measures.
The consequence inevitably entails tough trade-offs. However as a result of these are contested, inside authorities and by completely different curiosity teams, the implications and particulars are sometimes hid or given a deceptive spin.
The satan within the element
A number of examples from this 12 months’s assertion illustrate this – and the divisions inside authorities itself.
The primary is the problem of presidency spending on salaries.
Prior to now the Nationwide Treasury and a few economists have sought to recommend that this type of spending is inherently “unproductive”. In actuality, even from a slim financial perspective, that’s incorrect. Such spending funds the work of academics who’re answerable for educating future generations, nurses whose job consists of holding individuals within the labour market wholesome and alive, and law enforcement officials whose presence ought to contribute to holding crime in verify.
For a few years there was an arm-wrestling match between the treasury and different components of presidency answerable for figuring out public sector wage agreements. The way in which this has been “resolved” is by the treasury budgeting for the wage will increase it believes are applicable, the opposite components of presidency agreeing to greater wage agreements, and the treasury then forcing departments to chop the whole variety of staff with a view to maintain complete wage prices down.
Though the treasury accompanies its stance by promising that “important” or “labour intensive” departments and sectors can be protected, it has by no means offered any detailed info to truly present that’s taking place. The consequence is a type of “austerity by stealth” in relation to workers out there to supply public companies.
The a lot better answer would have been for a social compact on wage will increase and public sector employment. That may require compromise from the treasury but additionally public sector commerce unions. Unable to succeed in that type of mature answer, the arm-wrestling continues yearly with most people being the losers.
This 12 months the treasury budgeted for a rise of lower than 2% however the precise end result was 7.5%. A few of this can be coated by funds taken from different essential expenditure gadgets, whereas the remainder will come from chopping public sector posts.
A seemingly optimistic improvement is that the assertion now makes provision for a continuation of the Social Aid of Misery Grant that was launched throughout COVID-19. This is among the solely sources of help to hundreds of thousands of South Africans who’re unable to search out employment.
The 2023 funds made no provision for the continuation of the grant: the treasury deliberate to finish it in March 2024, instantly earlier than the 2024 elections. Earlier this 12 months I argued to Parliament that such a call can be inequitable and will additionally unduly affect electoral outcomes.
Whereas it appears sense has prevailed with treasury now planning greater than R50 billion ($2.65bn) for such spending over the following two years, it stays to be seen what’s proposed within the 2024 funds.
One other instance pertains to essential public employment programmes. In a current speech the president cited his Presidential Employment Initiative as a significant success – though with out offering any detailed proof. The treasury proposes to increase this to 2024/25, which looks as if a very good factor. But it surely plans to take action by cannibalising funds for different public employment schemes just like the Expanded Public Works Programme and Group Works Programme: arguably a case of “robbing Peter to pay Paul”. And it appears intent on persevering with the pricey and ineffective Employment Tax Incentive.
Lastly, there’s the thorny problem of taxes. The most important reason behind a rise in nationwide debt ranges this 12 months is a shortfall in taxation income of virtually R60 billion ($3.2bn). Provided that you learn the element within the medium time period funds assertion does it end up that a big a part of this is because of personal sector funding in decentralised renewable vitality technology capability. This isn’t totally defined, however is more likely to be on account of worth added tax refunds linked to tax incentives launched within the 2023 funds. In different phrases: it’s the results of a coverage proposed by the treasury itself.
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Whereas the minister and the treasury have offered a sign of present pondering, the essential particulars and commitments of presidency’s fiscal plans will solely be clear when the funds itself is tabled subsequent 12 months. And people will solely be cemented when permitted by Parliament.
Some political events have recommended that the 2024 election could also be an important one since 1994: the identical is arguably true of the 2024 funds.
