Johannesburg - In rugby it’s known as a hospital pass.
A teammate flips you the ball at precisely the moment when an opponent is preparing to launch himself at you, having read the play and built up to maximum velocity. Honour dictates that you must catch the ball even if it means you cannot brace yourself for the hit.
The result tends to leave spectators gasping in horror.
This is somewhat akin to the hand dealt Finance Minister Nhlanhla Nene.
Up until he took the reins, the country was enjoying a relatively good global crisis.
The counter-cyclical fiscal policy implemented by Pravin Gordhan had softened the blow of recession, allowing the government to create jobs in the public sector, while they were eroding in the private sector; to increase the number of social grant beneficiaries and to borrow money for an infrastructure build programme.
The problem for Nene is the good times have not returned and, it looks like they won’t – at least not in the same form.
Meanwhile, the Treasury has committed to rebuilding the cushion – low debt levels and budget deficit – that gave Gordhan room to manoeuvre, ruling out an increase in borrowing beyond existing frameworks.
Demand for this country’s mineral products has weakened and job losses continue.
The growth projections Nene relied on to set his debt consolidation and budget deficit reduction targets have proven overly optimistic. More than this, people are feeling the pinch after many lean years and starkly showing up the shortcomings of the state.
Restlessness is mounting and there’s the small matter of local government elections next year.
The upshot is that more is expected of Nene, yet the resources at his disposal are meagre. On the one hand, he is under pressure to find money to launch a National Health Insurance scheme – with the Treasury coming under fire at the ANC’s national general council for allegedly blocking key policies of the governing party.
On the other, even if he wanted to, Nene would find it hard to borrow more without risking a downgrade of the country’s sovereign debt rating.
Meanwhile, the R45 billion in unallocated reserves he pencilled in for 2017-18 when he delivered his Budget in February will have been dented by the 7 percent public sector wage increase given this year, compared with the average 6.6 percent over the next three years Nene anticipated at the time.
The other two risks to the fiscal outlook he highlighted are also still in play.
Economic growth has undershot projections – there is even talk of a second global recession – and the finances of state-owned enterprises have yet to be convincingly stabilised.
Eskom, for example, while it has been able to project increasing stability of both power supply and leadership, awaits the outcome of a process to review the governance of parastatals, which could have profound implications for its business.
An expected return to financial health once its new power stations come on stream is under threat from a revolution in the energy sector that increasingly gives customers the option of producing their own energy from renewable resources, meaning Eskom could end up with fewer customers, especially of the wealthy variety.
Without clarity on its mandate and future structure, Eskom will be unable to adapt to this changed reality.
Similar challenges – apart from the governance issues – face parastatals like the SA Post Office and SA Airways, which also operate in sectors where their business model has been undermined by new developments. Nene’s commitment to fund future bailouts of parastatals through the disposal of non-core assets requires his cabinet colleagues to come to the party with solutions.
He will also be closely watched on the question of nuclear procurement – a commitment the country is in a weak position to make at this stage.
Even if the government goes with the build, own, operate financing model in which the vendor raises the capital, that would still result in South Africa being tied to a dollar-denominated electricity tariff component for decades to come – a fact that would not escape the dreaded rating agencies.
Nene, then, has plenty of bases to cover when he spells out the government’s medium-term spending plans on Wednesday.
Given that the Treasury has already been leaning on government departments to shift spending to service delivery and away from frills like catering, travel, accommodation and consultants, it’s not clear how much fat there is left to trim, assuming these measures have been successful in the first place.
Nene said in February cuts in spending plans up to 2017 had shaved R25bn from last year’s projections.
He has already raised marginal tax rates by 1 percentage point and the total 80.5c per litre increase in the fuel levy he announced in February would begin to really bite should oil prices recover.
There are calls for a wealth tax which, though morally appealing, would also yield relatively small returns, according to the Davis Tax Committee.
An increase in VAT would hit the poor hardest and would not fly politically.
Nene’s the man holding the ball and we can only hope he finds a way to sidestep the collision between public expectation and economic possibility.
SATURDAY STAR