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Cape Town - A mini budget, held virtually mid-term between the annual national budgets, is more of a review of government finances than a policy-setting event.
Wednesday’s event, presided over by Finance Minister Nhlanhla Nene, is hardly likely to rock any political boats, but it might well give us all a bout of seasickness.
Nene, as usual, has an unenviable job at hand. The domestic economy has only deteriorated since February. The slide is most starkly felt in the gross domestic product (GDP) – downgraded again this year by the World Bank to a paltry 1.4% for the year. And, despite rosy predictions of a lower oil price coming to the rescue, high levies have largely prevented any such benefit occurring.
Add to this the falling rand, continued labour instability, an inability to make any dent on unemployment and continued policy paralysis and confusion and there is little scope for a get-out-of-jail option for the minister.
The big problem for Nene remains a political one. With the most competitive elections ever in the country’s history looming, government will be reluctant to bite the hand that electorally feeds it. While the minister is likely to call again for prudent spending cuts in state expenditure, keeping core civil servants happy until May next year is still a top priority.
Bailing out those pesky state-owned enterprises continues to sap the fiscus. Expect some self-congratulation on issues surrounding a more stable power grid and stemming the tide of losses at South African Airways (SAA) – but the crucial issue of massive future capital expenditure still remains in both these sectors.
Nene will also be unable to commit to any major changes in taxation policy, given that the Davis Commission still has to finalise a raft of recommendations. Tax is always contentious and – despite impressive efforts by the South African Revenue Service (Sars) – increases in both direct and indirect taxes are likely to be postponed until next year.
Something's gotta give - but what?
Back in 1954 American singer Johnny Mercer released the classic song "Something’s Gotta Give". And this is precisely what is giving Nene sleepless nights. Just exactly where will expenditure pruning come from? The parastatals need all the help they can get, because there is little ideological traction to attempt even partial privatisation.
With an election looming, there is also little chance of any dramatic policy shift, tying the minister's hands further. What will have to "give" to avoid an increasing budget deficit? Here’s the rub.
With an inability to lock in the private sector due to ideological constraints, government has increasingly had to pursue an intended plan of infrastructure expenditure almost on its own. At the heart of this has been a breakdown in the core partnership between the state, labour and the private sector.
Deep suspicions, policy uncertainty and bureaucratic red tape have clouded the cooperation needed to kickstart the economy. Chief casualties have been the long-ailing mining sector and, unfortunately, manufacturing which has been unable to benefit at all from a more export-friendly rand.
So, with little progress here, government’s one trump card was its well-intentioned commitment to infrastructure spend. Anecdotally, this spend seems to have become unhinged.
South Africa’s construction sector is complaining about a lack of commitment from government. It would seem that this is where the delays or cuts may come – and it represents a further negative on an economy desperate for an injection of life.
Ultimately, Nene now has tied hands. With little coming from the ANC’s National General Council to show it is shrugging off the ideological shackles that hold back growth, little can be done.
Still, the minister of finance can shift sentiment – after all, he will be talking as much to a domestic South African audience as to the rating agencies. He can provide a global context by stressing the international factors negatively affecting this country as well as other emerging nations.
He can reiterate the need for strong public-private partnerships, and even incentivise these within the confines of the alliance. He can call for greater productivity, greater equality and a more stable labour relations regime.
Above all else, he can re-commit to the National Development Plan – a document now gathering dust as quickly as New Zealand scores tries. Perhaps then the minister can "box smart". But ultimately, progress will be based on prudent policy choices rather than enhancing state control and raising taxes.
Nene may be between stability and a further ratings downgrade. It’s as stark as that.
* Daniel Silke is director of the Political Futures Consultancy and is a noted keynote speaker and commentator. Views expressed are his own. Follow him on Twitter at @DanielSilke or visit his website.
