Finance Minister Malusi Gigaba.
Cape Town - As usual, Wednesday's medium-term budget will have to be a balancing act. But Finance Minister Malusi Gigaba will, in his first budget speech in Parliament, have to balance both government's books (income and expenditure) and the political impact of what he says and does not say, with the fiscal realities (the figures).
The Cabinet reshuffle and recent changes to the boards of South African Airways (SAA) and the SABC have reinforced the notion that politics and the fight within the ruling ANC government is still taking preference over the long-term fiscal and economic wellbeing of the country – and what is best for all its inhabitants.
On the one hand, Gigaba has to convince the business world and investors as wealth creators, as well as the markets and international rating agencies who keep a watchful eye on our creditworthiness, that fiscal prudence is still government policy.
It won't be easy, given the lack of economic growth, lower-than-expected tax income and the mounting pressure of the financial mess most state-owned enterprises (SOEs) are in.
On top of that, there is Gigaba's own track record as the minister of state enterprises who effectively started the process of capturing SOEs for political and financial gain for the connected few - or looting by certain individuals, if you will.
On the other hand, there is the mess his party is in and how he must position himself before the December conference, where new leaders will be elected. Since his appointment in April, Gigaba has tried to play the role of sensible finance minister trying to stay clear of politics, and especially faction-based politics.
But apart from the instability and uncertainty created by recent musical chairs in the Cabinet, SOE boards and also among key leaders in the civil service and other state institutions, the elevation of David Mahlobo from state security minister to energy minister has again raised fears of big time spending on nuclear energy and other lucrative (for the chosen ones) state projects.
If Gigaba tries to accommodate these projects, he will have to indicate where the money will come from. The mini budget explains the government's plans and forecasts expenditure and the way it will be financed over the next three years.
Given our lacklustre economic performance and expected shortfall of R30bn to R40bn on the February budget, and the fact that borrowing levels and the budget deficit should be kept at manageable levels, it is evident that substantial tax increases in the main budget next February is inevitable.
There is obviously little fiscal space left for expensive nuclear power, a national health insurance, or other infrastructural projects or shortages at SOEs. The voracious SAA regularly guzzles billions from the fiscus (R5.2bn in bailouts over just three months since June, as lenders called in loans), while Eskom alone holds government guarantees of around R300bn.
That means the government is ultimately responsible for this amount if Eskom can’t fulfil its obligations. It should be borne in mind that the energy provider already had a sharp spike in irregular expenditure to R4.043bn in the 2016/17 financial year, up from R106m the previous year, according to the auditor general. And it has asked for an outrageous 20% increase in electricity tariffs this year to stay financially healthy.
Given the seriousness of government's expanding obligations, and the possibility that Gigaba will try to keep the Zuma camp happy, he might even decide to divert from previous practice and announce tax increases (or new taxes like one on the wealthy) already in the mini budget.
His only other options are to sell state assets, cutting state expenditure on an unprecedented scale, and dipping into the Public Investment Corporation (PIC, which invests mostly pension money of state employees).
The first two options, although preferable, will be politically unpopular and thus unlikely. The last will be downright dangerous and even illegal, and thus likely be disguised or hidden as an investment decision.
Then there is the uncertain political background to Wednesday’s procedures. The prevailing poor economic performance and fiscal crisis facing South Africa is a direct result of a history of bad policy options, bad policy implementation and credibility issues within the ANC.
ANC captured by destructive thought processes
One can almost say that a big part of the ANC (and many supporters) has been captured by a destructive political thought process and the sowing of suspicion.
Gigaba will have to show his hand more clearly on Wednesday. To his credit, he did say as recently as last week in Washington while attending the International Monetary Fund and World Bank annual meetings that South Africa can’t currently afford nuclear technology.
That immediately sparked speculations that he is turning against the Zuma camp and might be removed as finance minister.
The situation might look ominous, the table set for a horror debut by Gigaba. But things can change very fast, especially perceptions which will bring back essential trust and confidence.
There are billions out there waiting to be invested. About 12 years ago Tom Friedman floated the idea of a golden straitjacket in his book, The World is Flat. The theory was that because of globalisation, financial markets would force politicians to apply responsible economic policies.
The financial meltdown in 2008/2009 brought a hiccup regarding this theory, with massive reflation necessary and fiscal discipline a major casualty. But with the world economy now normalising, those restraints are once more being tightened.
These are ominous signs for both Gigaba and the SA taxpayer. But the sooner SA tightens up its fiscal position, the better for long-term growth, job creation and prosperity.
* Visit our mini budget special issue.