The governing party isn’t big on trade-offs. The notion that you might have to cut money from one place to afford above-inflation salary increases or finance a basic income grant (BIG) doesn’t sit easily in an administration with the same grasp of fiscal rectitude as Carl Niehaus has of tallying dead relatives.
Well, now the moment of truth has arrived — tax receipts have tanked as the commodities bubble has burst and belts have to be tightened. So, where should the National Treasury cut?
Three areas spring immediately to mind: symbolic spending cuts to illustrate how serious this is, meaningful cuts that move the needle, and ditching deeply flawed policy ideas that can only be funded through draconian tax hikes.
The first is the easiest. We already have one of the most bloated governments in the world, so slashing ministries is a good place to start, as is cutting VIP security, which costs R3.3bn a year and only seems to get Paul Mashatile (and his trigger-happy bodyguards) in trouble.
It isn’t going to fix the real problem — which is that South Africa has to find R16bn a month just to pay the interest on its debt. But it will demonstrate that politicians themselves are willing to make some sacrifices to stem the bloat.
If South Africa continues behaving as it has in the past, it will find itself in a full-blown fiscal crisis
Then there are the pie-in-the-sky ideas — such as National Health Insurance (NHI), which will cost an estimated R500bn a year. Not only do we lack the funds for it, but also the skills, managerial capacity and governance systems to implement it.
The BIG is another example of wishful thinking. It would be a fabulous anti-poverty tool if the country had found a magical money tree, but the only way to fund it is by substantially hiking tax rates, including VAT and personal income tax, in a stagnant economy, deepening the fiscal crisis.
For years, South Africa has kicked the can down the road to avoid making the big, difficult trade-offs required for a return to fiscal sustainability.
The Treasury has done a heroic job of slowing overall spending growth, saving windfall revenue and reining in the wage bill in recent years. But in the absence of faster economic growth, it has all come to nought. Now, as the commodity boom fades, real fiscal austerity is required just as the ruling party faces its most important general election since 1994. It seems that 2024 is going to be the year where debt and politics collide.
To be fair, the ANC government has never resorted to populist spending as a campaign tactic. But then it has never faced losing its majority before. The fear is that the government will slash spending on vital economic infrastructure and social services to the poor, further dampening growth and fuelling social unrest, while continuing to bail out delinquent state-owned enterprises, pay generous salaries and fund presidential employment schemes.
It is also likely to keep the growth-sapping ideas of a BIG and NHI alive to bolster its political capital while borrowing ever more heavily on the bond market.
Over the past few years, the commodity boom has saved South Africa from the consequences of this approach, but there is no more fiscal wiggle room. Debt is too high, growth is too slow, and the country’s risk premium is flashing red. If South Africa continues behaving as it has in the past, it will find itself in a full-blown fiscal crisis.
We are not there yet but buckle up, the ride is about to get a lot bumpier.
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