EDITORIAL | Budget doesn’t answer the main question: how is SA going to grow?

Finance minister Enoch Godongwana ticked all the right boxes in his delivery of the medium term budget policy statement in parliament, and in doing so carried on the work started by his predecessor Tito Mboweni. He even remarked to journalists that the only difference between him and Mboweni was that he wore better shoes. Maybe, but even with his better shoes, Godongwana had little room to even wiggle his toes, and of course he is eager for all to see that he is indeed walking in Mboweni’s footsteps.

This is no bad thing, at first glance. Mboweni commanded respect internationally, as a regular at the Davos meetings of the rich and powerful, and as a former Reserve Bank governor. Godongwana may be a less colourful figure, and has stayed away from sniping at fellow ÁNC leaders’ weakness for big spending.

But being Mboweni (or in this case Godongwana) is not enough to resolve the deep structural problems besetting SA’s economy. Lately there has been debate among some of SA’s top economists and public policy specialists as to whether SA can afford a permanent basic income grant, given our high rate of unemployment, poverty and inequality. Some have argued we need to borrow more to stimulate growth, but others have warned of a looming debt trap.

So we continue to live beyond our means, much like the consumer with a maxed out credit card, and who can only pay off the interest each month.

What is certain, is that without policies that promote growth, there can be no hope of a permanent widening of the social welfare net if SA is to remain a viable concern. As the budget statement put it: “Any proposal to expand this system should meet the test of sustainability and effectiveness by being fully and appropriately financed to ensure the fiscal balance does not deteriorate. Evaluated against pre-existing priorities of government that remain unfunded, including basic services, education and healthcare.”

But if growth is the key, then it’s disappointing to reflect that while the Treasury and Godongwana may have put together a reasonably credible budget package, it is in reality just a holding operation, which Godongwana himself was ready to acknowledge.

The big problem is debt, with mounting debt-service costs, a signal that SA must stabilise its public finances to redirect spending in favour of social and economic development. In total, 21c for every R1 of tax goes to servicing public debt, R334.5bn this year alone. 

The more that goes on debt, the less will go to schools, hospitals, policing and infrastructure. So we continue to live beyond our means, much like the consumer with a maxed out credit card, and who can only pay off the interest each month.

Granted, the ratio of debt to GDP,  which indicates the extent of our pauperisation, has moderated somewhat with better than expected tax-collection revenues, with a R130bn windfall from a commodities boom. Our growth outlook looks a little better than it has for some time, but it’s a temporary boost partly coming off a low base because of the Covid-19 epidemic and economy-strangling lockdowns. Then we’re back to low, single-digit growth, which will hardly be enough to fulfil the constitutional goal of uplifting people from poverty.

Godongwana made the usual reassuring sounds about reining in spending, and trying to divert funds to infrastructure development in the future, and this was welcome.

But whether the ratings agencies will be as easily impressed with Godongwana’s moves remains to be seen. He drew a line in the sand on extending grants, and he professed tough love to cash-guzzling state-owned entities, saying no to more bailouts.

Both Fitch and S&P ratings agencies have expressed disquiet not only about the absolute level of debt, but the trend of rising debt in a low-growth economy cannot be sustained, they argue. In other words we shouldn’t be hoping for any relief from junk status any time soon.

But outstanding in all of this is the failure thus far to reach a multiyear deal with the public service, which could weigh heavily on SA’s debt trajectory in years to come. Also not factored in is the rise in pressure, partly from within the ANC, for a more expansionist public spending policy, especially on welfare, which could also push the debt needle into dangerous territory.

Godongwana’s budget speech reflects the state that SA is in today: deeply in debt, facing rising pressure, but nonetheless showing some resilience in the face of fiscal headwinds. The holding action is what is needed now as a minimum condition, but it doesn’t answer the question that should concern us all: where is SA’s growth going to come from in future, and are we gearing for that growth, or merely rearranging the chips on the roulette table?