Budget did not serve the real economic hopes of majority

Finance Minister Enoch Godongwana

Finance Minister Enoch Godongwana

Published Feb 27, 2024


“The government is making the most out of very limited resources.

We continue to support economic growth; reduce the growth of government debt and the cost of debt; and allocate more funds for core services, provide for the social wage and preserve infrastructure budgets,” is the self-styled takeaway message of Finance Minister Enoch Godongwana in his pre-election National Budget delivered to his 61 million compatriots.

While the message will give succour to the 19 million or so South Africans receiving increased permanent social grants – perhaps at R387.3 billion one of the most generous in the world and inflation-linked to boot, to the majority of his compatriots there is not much relief or hope as if the cost-of-living crisis with its entrenched cycle of food, fuel and utility price hikes merely affects the most vulnerable, disadvantaged and the elderly.

The impacts of Covid-19, the supply chain disruptions due to the Ukraine conflict, the global economic downturn with its sluggish recovery, regional conflicts and climate change have shown that perhaps for the first time in the post Bretton Woods era it is the middle classes, often seen as the ‘insulated’ backbone of market economies, that have been badly affected and left behind, struggling to balance their household budgets because wages have failed to keep up with price rises and inflation in general, and that income, opportunity, gender, and social mobility inequality have proliferated seemingly unchecked.

The very rich – a small minority – get even richer, but this time round it is not only the very poor that get poorer, but also the middle classes as the inequality gaps assume a momentum of their own. South Africa is no exception. No wonder populist politics with a tinge of xenophobia are rearing their nefarious heads in democratic polity in several countries including the Rainbow Nation.

Godongwana is staking his budget and the country’s immediate future on three core promises over the near term – supporting economic growth; reducing the growth of government debt and the cost of debt servicing; and allocating more funds for core services, social wages and infrastructure.

Talk about increasing the national pie to address the political imperative of wealth ‘distribution’ – or is it ‘re-distribution’? – is eminently logical.

But where the rationale simply disintegrates is the desperate attempt at continuity politics instead of owning the governing record of each of the ruling ANC administrations since 1994.

“The budgets we have tabled since 1994 have been about securing the goal of growing the economy, so that we can do more to address the inequalities and deprivation that still scar our society and undermine the promise of democracy,” he noted.

Never mind the lost decade of state capture, which subverted the very institutions that were supposed to be the building blocks and moral compass of the brave new South Africa, and which has pervaded the country’s body politic with new-found institutionalised pastimes of cronyism, corruption, and self-enrichment.

How odd that then vice-president Ramaphosa failed to call out this ‘national grab’ of the people’s wealth, which is a direct legacy of the cumulative and entrenched economic and socio-financial woes the country is faced with today.

Never mind the lost opportunity costs in misappropriated revenues to the Treasury coffers through stolen assets, mismanagement, redress cost of the impact of services deficits and rampant crime and gender-based violence.

Even if we give the benefit of doubt to Godongwana’s take on the state of economy, it is difficult to conclude that Budget 2024 serves the real economic hopes and the lived experience of the majority of South Africans. It may be ‘pragmatic’ in serving the needs of winning the looming May 29 general election, but whether it will suffice to turn around the medium-term prospects of a ‘siege economy’ and preserve the ruling ANC’s absolute majority must be in serious doubt. Both the contradictions and the assumptions inherent in his three key pledges on which they are erroneously based are disconcerting.

The Treasury, IMF (International Monetary Fund), OECD (The Organisation for Economic Co-operation and Development) and the rating agencies all concur on the country’s weak GDP growth outlook.

A projected 1.6% GDP in two years is hardly going to make inroads in supporting an economy severely troubled by the impact of electricity capacity constraints, a struggling logistics sector and a persistently high level of inequality.

While the government is quick to cite the progress under Operation Vulindlela, the consensus is that this will contribute to a modest increase in real GDP growth in the near to medium term.

The stark reality is that to partly fund Godongwana’s hefty economic transformation bill including welfareh and outs, debt servicing, infrastructure etc over the next few years would require a minimum 5% Real GDP per annum, let alone excising wastage, mismanagement, and corruption from the economic body politic.

How can the minister talk about supporting growth when his fiscal deficit grew by 1% from FY2023 to a projected 4.7% in FY2024 largely because of a shrinking tax revenue base?

South Africa is not the first country to spend way beyond what it earns. Public debt is an integral part of the government’s fund-raising mix. But it has to be sustainable, and expectations well managed.

The country’s current debt metrics symbolises the very malaise at the heart of economic strategy. Godongwana inherited most of this legacy, but successive ANC ministers of finance since 2008 have conspired to fuel this fiscal folly on the back of burgeoning budget deficits (4.9% or R347.4bn for FY2023/24) and rising debt service costs (R382.2bn in 2024 – a staggering 20% of all government revenues) – together with lower tax revenues, the perfect storm for the economic chaos the country has been experiencing for the last decade.

Indeed, the average annual growth of debt service costs is projected at 7.3% for the next four years compared with 4.6% for consolidated expenditure.

The elephant in the ANC’s National Budget room is the whooping R387.3bn earmarked for social development – old-age grants, social security and welfare payments, child support payments – which is R5.1bn more than the debt service costs.

It is the duty of the government to look out for the elderly, infirm, vulnerable, disabled and the very young.

Reports of South African expats living abroad returning home in increasing numbers despite the manifold problems at home is not surprising.

That emotional umbilical cord of the essence of being a South African is atavistic to us.

This is where the Treasury and SA Reserve Bank (SARB) could be much more creative in capitalising on every fund-raising opportunity instead of further squeezing the 7.1 million taxpayers of which, according to international accounting firm PwC, 3 million pay 90% of personal income tax. The Treasury projects that the number of people receiving grants is expected to increase from 27.78 million in 2023/24 to 28.31 million this year, a situation which is economically unsustainable let alone affordable, and is in danger of nurturing a culture of welfare dependency instead of creating the conditions of true economic liberation and dignity in which South Africans from all backgrounds can feel they are contributing to.

The Debt Management Office of Nigeria, for instance, issues government guaranteed FGN Diaspora Bonds which are targeted at Nigerians living abroad to invest in their home country.

Perhaps the hour is nigh for issuing similar government-guaranteed products aimed at non-resident South Africans!

* Parker is an economist and writer based on London

Cape Times