Before we disappear down the rabbit hole of depressing numbers and projections, it may help to sketch the context in which finance minister Enoch Godongwana in his maiden budget this week pencilled in a measly annual growth rate of 1.8% — against a global average of about 4% as economies recover with the Covid pandemic tapering off.
We live in one of the most resource-abundant countries in the world, with an advanced mining sector, a developed agricultural sector and near-boundless attractions for foreign tourists. Yes, we have social problems arising from a legacy of dispossession and disempowerment and which express themselves as a low standard of education for the mass of the people, poor health indicators, poverty and homelessness. But to our natural resources we are also able to add a workforce that is skilled in parts, a resourceful and young population and the ingenuity that has made SA a centre of excellence, from medicine to astronomy, financial and tech innovation, legal and banking credibility.
Yet we have almost as many people out of work than we have in work. Over the next three years, we learned from Godongwana in his budget presentation in a makeshift parliament this week, SA will spend R3.3-trillion, which equates to almost 60% of our non-interest spending over the next three years, on the vulnerable and the indigent. The extension of the so-called Covid-19 grant of R350 a month will cost the fiscus R44bn this year.
We sit on a national debt that amounts to R4.3-trillion, which is projected to rise to R5.4-trillion in the medium term. Godongwana used 45% of the R182bn in tax revenues due to higher commodity prices to help reduce the borrowing requirement, thereby giving the Treasury some breathing room. Yet each individual living in the country is now encumbered with debt of R69,291 as a fraction of the national debt compared with R22,869 in 2008. We are literally drowning in debt.
In assessing our financial health as a nation, two other considerations loomed large in the budget. One was the public-sector wage bill, which now consumes 35% of the budget. Granted, this money goes in the main to providing teachers, health workers and police personnel. Spending on the public service amounts to R665bn this year, and using the conservative figure of a 1.8% increase this year, Godongwana still predicts the wage bill will rise to R702bn. Whether the public-sector unions, whose interests are especially dear to the government given the ANC’s alliance with trade union federation Cosatu, will be prepared to pull in their belts remains to be seen.
In addition to the public-sector wage bill, it is the social and popular demands that will weigh heavily on the government. Absent from the minister’s speech was any clarity on whether the government will indeed make the Covid grant permanent in the form of a Basic Income Grant. Again, Godongwana sounded a caution about affordability being the key. And the hoped-for clarity on the future of state-owned entities, especially Eskom, remained elusive.
In its reaction, ratings agency Fitch noted the extension of the Covid grant meant the government would breach its expenditure ceiling in the 2023/24 financial year.
“Though we anticipated the breach this year, it raises questions about the government’s ability to pursue fiscal consolidation if revenue forecasts disappoint or other fiscal risks materialise,” said the agency.
SA’s problems can really only be solved by economic growth, “but so far, government initiatives and progress on implementation has been insufficient to make this likely”.
On the positive side, there were no tax increases. In fact there was tax relief amounting to R5.2bn. Godongwana has been praised for a responsible, even boring, budget. It was very much a budget one might expect a minister in President Cyril Ramaphosa’s government to deliver. Promising modest improvements but eschewing the dramatic and even necessary in a context where no one, least of all the government, knows where we are heading.
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