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Never before, in the democratic era, has so much been at stake in a budget. And never before has the ANC been this fragmented and the state so dysfunctional.
With revenue lower than expected and borrowing costs higher, SA is again staring at the future possibility of a debt trap, where it must borrow to pay borrowing costs as debt service costs consume an ever-increasing proportion of tax revenues.
Politically, an equally high-stakes game is playing out. The ANC is clearly failing in its mandate to provide "a better life for all" as infrastructure fails, services deteriorate, crime rises, and the economy remains stagnant. There is no possibility that it can meet its policy aspirations or even keep pace with existing commitments. A tough election looms.
After news of a meeting between the Treasury and the Presidency a few weeks ago to discuss the most austere Treasury proposals since 1996 became widely known, and the Treasury's letter to provinces and its presentation was leaked, there has been a sense of panic and anger in the ranks.
The ANC’s head of the Economic Transformation Committee, Mmamoloko Kubayi, accused Finance Minister Enoch Godongwana of acting "illegally" by giving instructions to provinces to curb spending. She accused him of usurping the power of the president.
This was followed by an urgent meeting last week between top ANC, SACP, and Cosatu officials and Godongwana to raise concern over the proposals. With only four weeks to go to the medium-term budget policy statement, a smaller group of officials are now considering the proposals with a brief to report back to the wider leadership. Will they succeed in laying down some red lines for the Treasury?
The thrust of the Treasury presentation was this: While revenues are lower than anticipated and borrowing costs higher, the government faces many "unfunded" budget requests.
While top among these (and by far the biggest cost) is a bigger and more permanent social grant for the unemployed, there are other things too. These include funding for the presidential employment programme, money for the SA National Roads Agency for which the e-tolls have not been resolved, the collapsing Post Office, SAA, desperate pleas from the SA National Defence Force, and requests from provincial health and education departments for top-ups to baseline budgets as all of them are on track to overspend.
(Another hefty cost in the pipeline that was not mentioned is the National Health Insurance, which will require much larger state resources than are presently allocated to provinces.)
Among the solutions proposed were the closure of dozens and dozens of government programmes (lists with no strategic order, rhyme, or reason); the restructuring of the state to reduce administrative costs, curbing the wage bill by reducing the number of employees, and tax increases.
The rationalisation proposed by the first two solutions is long overdue, but that can only be achieved in the medium term. Closing departments and programmes will take time and consultation and, in some cases, will require changes to the law.
To curb the wage bill, Treasury proposes reducing employment through voluntary severance packages and early retirement. As early retirement (with no pension losses) has already been in place for several years and has had little support, the Treasury proposes an added incentive of two weeks' severance pay for every year worked. This will bring added costs and might not change much except on the margins.
The fourth solution – linked specifically to a higher and bigger social relief of distress grant currently at R350 – is a 2 percentage point increase in VAT when the February budget is tabled.
