OPINION | Budget 2021: Treading water on crushing debt and fragile revenue sources

25 February 2021 - 14:17 By Julius Kleynhans and Matt Johnston
Failing SOEs continue to haunt the budget, says Outa.
Failing SOEs continue to haunt the budget, says Outa.
Image: Esa Alexander

The National Treasury found itself cornered by a triple threat. Taxpayers are fed up, ratings agencies bring consistent downgrades, and yet fragile political alliances refuse to allow the radical change we need to implement.

At a glance, the result is a risk-averse strategy that fails to address root causes of our problems. Budget 2021 holds the much-needed line on fiscal consolidation in the face of public service wage demands, but continues to avoid addressing SA’s fundamental problems.

The size of the deficit is less than feared, but it is still vast and must be filled with increased debt, which SA borrows at premium rates and puts our country in more debt.

The recession we found ourselves in a year ago, along with the Covid-19 pandemic and strict lockdown regulations, has taken its toll. Though the budget brings some relief, it is also a headache as we see years ahead of money being sunk into failing SOEs that should be restructured or closed.

A breakdown of the 2021 budget.
A breakdown of the 2021 budget.
Image: treasury.gov.za

There were encouraging aspects, however.

The government appears to have taken note of the anger from taxpayers over suggestions of tax increases after years of unrestrained waste and looting, so backed down on last year’s proposal to increase taxes and on recent hints of increases to pay for the Covid-19 vaccine.

Instead, there is a little tax relief for individuals and businesses, which is welcome.

The government has found sufficient vaccine funding, though this indicates a two-year rollout.

Sars gets an extra R3bn over three years for a new unit to ensure tax compliance of those with wealth and complex financial arrangements. The Department of Justice gets R1.8bn to combat crime and corruption, but that doesn’t necessarily mean the money will be applied where it’s needed most.

Unfortunately, there is a long and difficult road ahead. Much of this budget is treading water.

Debt-service costs are increasing as a percentage of the budget. Though this is increasing at a lower rate than previously predicted — which will reassure the ratings agencies — the size of the total debt is heading for an enormous R5.23 trillion by 2023/24.

Those debt costs are slowly edging out social spending. In 2019/20, debt-service costs (R205bn) were less than spending on health (R222bn) and social development (R285bn), but by 2023/24, debt-service costs (R339bn) will be higher than spending on both health (R245bn) and social development (R325bn).

Of course, such figures aren’t sustainable.

While the pandemic lockdowns hit the poor hardest, with the big job losses at lower levels, many of these were not paid enough to be taxpayers. However, the budget shows that over the last two years, the number of registered taxpaying taxpayers has dropped each year. In the last year, there are 12% fewer of those paying tax on more than R1m a year, many perhaps having left SA.

The solution is not for municipalities to hunt for other sources of revenue but to improve the management of revenue streams they already have and to stop abusing our rates and taxes.

Taken together, crushing debt and fragile revenue sources means the status quo cannot last long.

While the Covid-19 social relief of distress grant is extended a little longer to the end of April, the increases on the regular grants are merely token gestures and there is a long-term loss in value in the grants. This is very bad news for those who rely on it, but indeed, as minister Mboweni says, the government is not swimming in cash, and our limits are hardening.

The department of tourism has reprioritised R540m over the medium term to establish the Tourism Equity Fund and support tourism recovery. While we welcome the support for this crucial sector, we are concerned that this may mean that the department will acquire equity stakes in tourism enterprises, if businesses must sell a stake in their enterprise to get help.

The fundamental problems are barely tackled.

Failing SOEs continue to haunt the budget, and the list of their problems makes dismal reading. Rather than seeing expedited structural reforms, we see annual increases and ad hoc injections of capital from the fiscus to unviable institutions.

Eskom is still on almost perpetual life-support from the government (R56bn in 2020/21, R31.7bn in 2021/22) and is also borrowing more to meet debt payments. The SAA bailout of R16.4bn over three years announced in last year’s budget remains but, as Outa predicted, SAA now needs more: R19.3bn, though this isn’t (yet) in the budget. The Land Bank is bailed out. The desperate Denel is “discussing” its situation with the government. The SABC, with arguably a more important public mandate than SAA, is retrenching staff. Acsa is selling non-core assets to make ends meet; but in a poorly timed move, arts and culture this week announced two airports would be renamed.

Government capacity is still lacking at every level, which affects every programme from vaccine rollout and early childhood development programmes to mega infrastructure projects.

While the government grapples with the remuneration bill by trying to reduce the annual increase — an essential move — there seems little will to weed out the rot in the public service: where are the dismissals of those who oversaw the looting, those who dishonestly claimed Covid-relief grants and those whose programmes fail to deliver year after year?

Expecting those who connived in corruption and mismanagement to get SA out of this mess is unrealistic. Granular budgets need to get real, and the National Treasury cannot rely on individuals who caused our financial woes to provide solutions.

We hope the new National Implementation Framework towards the Professionalisation of the Public Service, which is still in process, will help move the public service further towards delivering value for money.

We need to go back to the drawing board in our public sector expenditure, and civil society must be at the forefront of such a renewal – rather than keeping the wrong hands at the till.

The finalisation of the Public Procurement Bill is urgent, but civil society has raised concerns about its limited provision for public transparency. If Nersa and its shocking decision-making is the model, a new central procurement regulator on the horizon doesn’t exactly inspire confidence.

Local government finances remain a major concern. There doesn’t seem to be a solution on the table to the municipal debt problem, and a doubling down on “own revenue” is being put forward. As part of the fiscal consolidation policies over the medium term, transfers to local government are reduced by R19.4bn. Municipalities are already implementing wage increases most cannot afford, so these cuts will add to the pressure.

The solution is not for municipalities to hunt for other sources of revenue but to improve the management of revenue streams they already have and to stop abusing our rates and taxes.

While there are nuggets of real value in this budget, such as the tax breaks and vaccine funding, it is yet another budget which does not engage with the political problems and barriers which have plagued SA for years. We need to go back to the drawing board in our public sector expenditure, and civil society must be at the forefront of such a renewal — rather than keeping the wrong hands at the till.

 

  • Julius Kleynhans is Outa's executive manager: public governance division, while Matt Johnston is its parliamentary engagement manager.

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