It was always going to be an awkward medium-term budget, occurring as it did a little more than three months after the confidence-boosting formation of the government of national unity (GNU) but before the economy really had a chance to benefit. The upshot is some disappointing fiscal slippage. But never fear, the National Treasury still intends to get debt to stabilise at 75% of GDP next year.
Only, who really believes this? Sure, the Treasury under finance minister Enoch Godongwana has done well in exerting spending restraint across the whole of government. It is also budgeting more conservatively for real GDP growth these days and even managed to achieve a small primary surplus last year — the first since 2008. And yet it cannot close the credibility gap between what the budget says the government will do and what actually transpires.
Of course, nobody blames the Treasury for this. The problem lies with the politicians who cannot make the tough trade-offs required to run the country. And so huge contradictions persist between the tight fiscal consolidation path mapped out by the Treasury and the government’s expansive policy agenda.
Take education: the Basic Education Laws Amendment (Bela) Act will make grade R compulsory, but the medium-term budget fails to fund it. It is going to be R76bn short just in terms of funding existing requirements. This means the Western Cape must slash 2,400 teaching posts. It is screaming blue murder. The DA, which was all in favour of fiscal discipline before one of its own became the education minister, is battling its own contradictions.
With the formation of the GNU there was hope that policy clarity would improve because the parties would be forced to agree on a clear joint programme of action. Instead, policy dissonance persists, and it seems unlikely that key decisions will have been taken by the 2025 national budget in February.
To budget properly, the Treasury needs to know the GNU’s decision on the future scope of basic income support, the Bela Act and National Health Insurance (NHI). Ideally, it should also know the outcome of the latest public sector wage negotiations and be ready to pronounce on a fiscal rule and the possible lowering of the inflation target by February.
The FM believes that, regrettably, none of these decisions will have been taken by then even if the technical work has been done and the evidence is clear. Why? Because it requires politicians to make difficult choices. It is far easier to keep fudging things.
NHI is a classic example whereby the country keeps on the books a deliberately uncosted law, which it cannot afford and has not budgeted for, because politically it’s nice to have. This is regardless of the fact that investor concerns over the long-term fiscal implications weigh on the country’s risk premium and push up the cost of borrowing. After all, as Michael Sachs points out in this issue, “strategic ambiguity is so useful” and has come to define the political character of the ANC in government. It is now in danger of also infecting the GNU.
The upshot is heightened execution risk, which undermines the budget’s credibility and leaves the Treasury praying for more growth (or having to hike taxes) so it can still meet its fiscal targets. It’s the South African way. But it’s not good enough.
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