When the new Finance Minister delivers his first medium-term budget on Wednesday, he will have to say SA has run out of money, writes Allister Sparks.
Cape Town -Poor Nhlanhla Nene. The new Minister of Finance is a competent man, but when he delivers his first medium-term budget in the National Assembly on Wednesday he will have to give us bad news. It is that South Africa has run out of money.
By that I mean he will have to tell us that the government has broken the most basic of all economic rules, the one given us by that hapless Dickensian character, Wilkins Micawber, who ended up in debtors' prison: “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and sixpence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and sixpence, result misery.”
As Nene gives us a projection of the national finances over the next three years, as the medium-term budget requires him to do, he will face the harsh fact that government expenditure is now greater than its income. And that can only mean misery.
Revenue from mining, crippled by strikes, reduced production and low prices, is static. So is revenue from industry. The weakened rand has failed to boost exports as government ministers insisted it would; it has simply increased inflation and increased the cost of capital imports. Meanwhile, government expenditure has gone through the roof.
A year ago when Nene’s predecessor, Pravin Gordhan, presented his last budget, he warned that if the government continued with its prevailing rate of expenditure, the point would be reached where it would be unable to maintain its welfare payments as well as the cost of development projects to which it was already committed.
Well, that moment has arrived. And something will have to give.
Just how blunt Nene will be in delivering this unpalatable message we shall know only when he delivers his speech on Wednesday afternoon. If he is honest and open with the electorate and tells us frankly that we have fallen on hard times and that some government functions will have to be cut, we shall at least know that he has told the cabinet the facts and that it is united behind him.
If not, if he prevaricates and tries to muffle the bad news with verbal flannel, we shall know that the cabinet is fragmented and that Nene is on his own.
Either way, whatever Nene says, the facts will be there in the figures for all to see.
The government will no doubt try, as it has done before, to blame our woes on the global economic situation. Don’t be fooled by that. Worrying though the global climate is, the particular mess we are in – and it is serious – is of our own making
One may wonder how we have landed up in this mess when only a few years ago then finance minister Trevor Manuel was giving us healthy budget surpluses.
It is because the Zuma administration has squandered those surpluses and more with profligacy and corruption. Everything from Nkandla to expensive first-class air fares, from a 145 percent rise in the total cost of the public service to having the world’s largest and most expensive cabinet for a country of our level of development.
It is because, as Peter Bruce pointed out in his Business Day column last week, welfare payments and the public service alone are consuming 56.4 percent of all state revenue, leaving only 43.6 percent for everything else.
It is because of nepotism and crony-capitalism which has seen key jobs in just about every sector go to cadre deployments based on political loyalty rather than administrative competence.
It is because of a fragmented ruling party with different factions trying to move in different directions, so that nothing constructive gets done.
But most of all, it is because of a president who neither understands basic economics nor seems to care about it.
In speech after speech President Jacob Zuma tells us in one breath that the government is in the process of radically reforming the economy, and in the next that it is committed to implementing the fairly orthodox National Development Programme. Then we are told the objective is to establish a developmental state. Three contradictory statements intended to satisfy conflicting factions in the ruling party – which again means that nothing gets done.
The concept of the developmental state is in itself a paralysing factor. It means the government wants to control everything, even the way business gets done. But the fact is the government is the least competent performer there is.
From the Post Office to Eskom, from the SABC to South African Airways, from the education system to the health services, from the state of the SA National Defence Force to e-tolling and the extravagance of the unaccountable State Security Agency, all are in crisis. There is hardly a single parastatal that is not dysfunctional and bankrupt. And now there can be no more subsidies to sustain them.
The worst of it is that by its persistent meddling in the private sector, by its generally negative attitude towards business, the government is damaging the only source of revenue it has.
The government itself makes no money. Its revenue comes from taxes. In other words the private sector. Individual taxes and corporate taxes, VAT and customs duties, road taxes and vehicle taxes and fuel taxes.
And it is that meddling and discouragement of the private sector that is reducing the government’s revenue, or at least preventing it from increasing while expenditure is ballooning out of control.
So what will Nene do to cope with the shortfall he faces? Raising taxes will be politically unpopular and would anyway constrain new investment and reduce purchasing power, thereby weakening the economy further. Raising VAT would hurt the poor, which is unthinkable, and we can see that weakening the rand is not helping to boost exports.
There are hints that the government might cash out of some of its investments, in Vodacom and Telkom, for instance, as well as other companies managed by the Industrial Development Corporation. But that would be like an individual plundering his investments to meet day-to-day living costs.
It would also, ironically, amount to a form of privatisation, which is ideological anathema to the government.
No, the only way is to reduce expenditure. The suit will have to be cut according to the cloth available. This is where Nene’s hard choices will arise. Surely there can be no more land claims, for example, and no attempt to launch the national health scheme and other prestige and fantasy projects.
But then we have the breathtaking R3-trillion nuclear power deal that Zuma has secretly struck with Russia’s Vladimir Putin. Government spin doctors are trying to cloud it with a verbal dust storm about other agreements, but there can be little doubt it is a done deal.
And what an appalling deal it is. The Russians will build and operate the plants and our children and grandchildren will be paying them through doubled electricity fees even unto the third and fourth generation.
All of which points to the one most obvious fact of all. Jacob Zuma has become an unaffordable national liability. He must go.
* Allister Sparks is a veteran journalist and political commentator.
** The views expressed here are not necessariy those of Independent Media.
Cape Times