AND SO a budget for extraordinary times had to evoke biblical metaphors, from the Yiddish Tale of King Solomon “this too shall pass” to the Book of Matthew “Enter through the Narrow Gate”.
Finance Minister Tito Mboweni presented what is arguably the most challenging budget in the democratic South Africa and certainly the most complex since the adoption of the new fiscal framework including the Medium Term Expenditure Framework (MTEF), adopted as part of the Growth Employment and Redistribution (Gear) policy.
How ironic, and probably apt, that it is the 1996 Class Project faction of the ANC in charge to navigate through an economic crisis and use tools like a supplementary or emergency budget.
The kind of tools, like insurance or the gas masks or floating vests in airplanes, which you keep handy but hope to never use.
The supplementary budget feels like an austerity budget at time when the economy needs a stimulus, it leaves little or no room to borrow for infrastructure investment that government has pinned its hopes on.
The South African private sector has to step in to fund infrastructure and we mut pray that South Africa or the world does not suffer another crisis over the next decade, otherwise it would simply wipe us out.
That is probably the route that the country has to go to satisfy the requirements of borrowing from New Development Bank, or BRICS Bank, and the International Monetary Fund (IMF).
The NDB has thrown a $ 1 billion lifeline (R17 billion) and the IMF after protracted negotiations, is to consider South Africa’s request in early July.
Once approved, Mboweni hopes the World Bank will follow suit.
The terms of the NDB loan are not yet known but it will be interesting to see how the BRICS Bank, created as a symbol of South South collaboration, will differ from the Bretton Woods institutions
Mboweni is hoping to borrow $7 billion (R119 billion) but even that will not be enough for example to cover the R 300 billion tax revenue shortfall expected in this financial year.
That is why the deficit is being allowed to balloon to R 761 billion or 15.7 % of GDP.
Debt to GDP ratio balloons to 81.4 % of GDP as opposed to the 65% envisaged in the February Budget.
Government says it wants to stabilise debt at 87.4%, just below a psychologically damaging 90%, in 2023 and aims for a primary surplus.
To achieve that, it targets tax measures of R 40 billion over the next three years and spending cuts that are wide ranging.
They range from R2bn cut from Basic Education, R9.9bn from Higher Education and Training at a time when skills shortage bites, R2.3bn from Human Settlements, R2.4bn in Agriculture and R2.9bn in Land Reform and Rural Development.
These cuts will give ammunition to critics of austerity measures and in the next supplementary budget, to be presented with the Medium Term Budget Policy Statement in October, the minister will have to show how soon they can be reversed.
The trouble of course is that much of the borrowing will go to consumption spending, once the debt has stabilised, the question is whether there will be room for further borrowing to fund infrastructure.
This week at the launch of the Sustainable Infrastructure Development Symposium (SIDS), President Cyril Ramaphosa admitted that Private sector funding will be crucial for the delivery of infrastructure, especially through Public Private Partnerships.
Mboweni was understandably pensive in his presentation of the budget but he was thin skinned and brusque at the press conference afterwards, reminiscent of his days as governor of the South African Reserve Bank when he had to fiercely defend inflation targeting.
He did not take kindly to a question that seemed to doubt government’s ability to manage a zero based budget arguing that the MTEF system they have been managing is far more complex and he was evasive when asked where the additional R 40 billion in tax measures will come from.
Mboweni acknowledged the other pandemic that he is fighting: Unemployment, which on Tuesday was reported by Statistics South Africa to have reached 30, 1% in the first quarter, excluding discouraged work seekers.
This is even before the lockdown began.
From the budget, he could point to the R 23 billion paid out by the Unemployment Insurance Fund as well as the disaster relief grant, in place until October that will be paid out to some 18 million recipients.
But the solutions to South Africa’s employment crisis lies outside the budget because its causes are deep and structural, starting with education.
89% of South Africa’s labour force have matric or less, with 54% actually sitting with less than matric.
Only 2.3 % are graduates, while 6,8% have other tertiary education, including Technical and Vocational Education Training (TVET) Colleges.
Addressing these educational challenges and skills mismatch they bring about is a long term challenge.
The Alternative Information and Development Centre (AIDC) rejected the supplementary budget, noting that Mboweni is not fit to manage the crisis.
“The minister has completely ignored the immense suffering of the mass of poor people,” the AIDC said in a statement.
“Instead, he has chosen this moment to push through his favourite structural adjustment agenda – a la the IMF – in the name of dealing with debt. The callousness of enacting budget cuts and hiring freezes in the middle of a crippling health and economic crisis cannot be understated, nor forgotten.”
You know it is time to change course when even the capitalist bible tells you so.
A recent Financial Times editorial noted: “Radical reforms – reversing the prevailing policy direction of the last four decades – will need to be put on the table,” the salmon paper from London said.
“Governments will have to accept a more active role in the economy. They must see the public services as investments rather than liabilities and look for more ways to make the labour market less insecure.”
A time like this is an opportunity for everyone in the alliance to push through their reform agenda, whether it’s COSATU opposing the privatisation of Eskom or the SACP calling for the dismantling of the energy industrial complex and the concentrated nature of ownership.
Mboweni has used this opportunity to push through his economic reform blueprint Towards an Economic Strategy for South Africa.
This was described by Treasury Director General Dondo Mogajane as having evolved from a Tito Mboweni document to a Treasury document and now a cabinet document.
The task of implementing it now falls to deputy finance minister David Masondo, which suggests that he will be in the portfolio for the long term probably as minister at some point in the future. One wonders how Masondo will sell some of its proposals, especially around deregulation, to his colleagues in the South African Communist Party.
Some of the proposed reforms, like introducing competition to the banking sector, are driven by market forces through the emergence of new generation digital banks.
But the most critical task Masondo faces is to fight vested interest in government, business and labour to push through the reforms.
Like the National Development Plan and New Growth Path before it, if there is no buy in form alliance partners the probability of successful implementation remains slim.
Masondo will require the backing of Mboweni, with his thin skin, and Ramaphosa to see the reforms through.
(Compiled by Inside Politics staff)