By Thebe Mabanga
Finance Minister Enoch Godongwana will present the budget on Wednesday at a time when government arguably has more fiscal breathing room than it has had in years — possibly even since before the pandemic, and perhaps since before the global financial crisis.
How he chooses to use that space will signal whose interests are being prioritised, especially in an election year.
Annabel Bishop, Chief economist at Investec, describes the backdrop as benefiting from a “sentiment lift” that includes a credit ratings upgrade and removal from the Financial Action Task Force (FATF) Greylist.
Locally, low inflation and falling interest rates, as well as a stronger rand, round off a benign economic picture despite poor economic growth, expected to reach 1,5% this year.
Bishop emphasises the need to use the expected tax windfall from higher commodity prices and overall revenue overrun well.
The first challenge Godongwana will face is to pass the budget and navigate it through parliament without delays or legal challenges.
To achieve that, he needs firm buy-in from all the parties in the Government of National Unity (GNU) to withstand any opposition that could come from the Economic Freedom Fighters (EFF) as well as from the uMkhonto weSizwe Party (MKP).
Assuming that Godongwana is not heckled or interrupted, he then has to answer a number of key questions and put numbers behind key undertakings made by President Cyril Ramaphosa in his State of the Nation Address (SONA).
The water crisis
The water crisis has emerged as one of the most pressing issues confronting government, flaring up across the country, with the common denominator being poorly maintained and thus crumbling infrastructure.
Godongwana will point out the billions spent in building dams and bulk water infrastructure over the past 15 years or more under successive Water and Sanitation Ministers, including Buyelwa Sonjica and the scandal-plagued former Gauteng Premier Nomvula Mokonyane.
He will then seek to argue that the fault lies in the “last mile” infrastructure of local storage tanks and reservoirs and pipes to households and factories.
He will also point out that the long-contemplated reforms of water boards, some of which were supposed to be amalgamated, have not happened, and thus national government cannot be blamed.
He will nevertheless have to reprioritise funding, including infrastructure spend, and direct it towards water supply, while addressing delivery at local government level.
Local government reform
Godongwana is currently overseeing the reform of local government through Operation Vulindlela.
One of the key areas is the review of equitable share. There are calls from bodies like the South African Local Government Association (SALGA) for local government to receive more than the current 9% of equitable share. This is against 41% for provinces and 50% for national departments.
He will point out that municipalities receive what they do because they have revenue-raising capabilities from water and electricity sales, rates, and various licences and permits. A province like Gauteng, for example, depends on equitable share for 95% of its budget.
For local government to claim a bigger share of nationally raised revenue, one or both of the other two spheres will have to lose. This ignites the age-old debate of whether South Africa needs provinces.
Local government would need to show that it uses well what it currently receives to justify asking for more. Many might argue that the state of municipal finances does not justify an increase.
What to do with more money
Godongwana is expected to report that revenue collection is at 71% at third quarter, slightly ahead of projections. There is also a tax windfall from strong corporate receipts, most notably from gold and platinum group metals.
This is likely to allow government to achieve a budget surplus while debt to GDP ratio will fall to 78%, in line with projections.
This is where Godongwana must show whether he listens to markets and rating agencies, and reduces debt while increasing capital spending such as infrastructure, or panders to the needs of the poor and unemployed — 233 000 were discouraged work-seekers in the last quarter of last year.
They would need to see economic stimulus spending that creates work or a universal income grant that shields them from hunger and malnutrition.
Infrastructure spending must match plans
Infrastructure spending is a key stimulator and at R1 trillion over three years, Godongwana must show how spending will match announced plans. The Budget Facility Instrument is the latest tool that was announced to help improve spending.
The Public Service Wage Bill
The public service payroll will come under scrutiny in light of a lower inflation target and a multi-year settlement that now looks generous at 5.5%.
Godongwana will then have to allocate resources to projects such as the National Health Insurance, making the Social Relief of Distress Grant permanent, and continued provision of the social safety net.
The minister is in a better position than he or any of his recent predecessors has been. He must use it wisely.
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