SA's choices in coming months will weigh on us for years to come - News24

26 August 2019 - What the country's political elite chooses in the coming months will weigh on South Africa for years to come.

Terence Corrigan

Has South Africa finally arrived at an inflection point, a moment of change? Treasury has directed government departments to plan for spending cuts. In preparing their budgets for the next three years, they are to reduce spending by 5% in 2020, 6% in 2021 and 7% in 2022. Hardly unexpected, this points to just how serious a financial bind South Africa now finds itself in.

It comes on top of repeated acknowledgements of the dire state of public finances and the troubling direction in which the country is moving. Over the past few months, a number of stopgap interventions and proposals have been floated – such as cutting municipalities' catering and travel spend, and limiting refurbishments on ministers' residences – but Treasury's demands are something of a different magnitude.

Voices have been warning for over a decade that the country was overextending itself. The broad contours of this are well known. Government itself acknowledges that its wage bill is excessive – which has been driven significantly not by inflation or even by employment growth, but by generous, above-inflation increases over the years.

Over the past few years, public attention has been drawn to the constant need to rescue from penury the country's state-owned enterprises. Just this year, for example, R23bn was earmarked for Eskom in February, with another R26bn announced in July.

Topping it all, revenue is slumping. The last financial year was the fifth in a row in which revenue collection had fallen short of target – the SA Revenue Service collected R1 287bn against an initial estimate of R1 345bn, a shortfall of some R57bn (in the ballpark of what has been passed on to keep Eskom afloat).

To this can be added the unquantifiable, but doubtless cripplingly serious, impact of corruption and general inefficiency. Perhaps the most distressing thing about all of this this is just how much money South Africa's overburdened people have been made to hand over for such indifferent returns. 

And so South Africa finds itself ever deeper in debt, veering closer to a final credit downgrade, which would compound each of these problems, making the country's fiscal malaise pretty much unresolvable.

So perhaps what Treasury is heralding is the long-awaited "tough choice". And perhaps doing so is a necessary first step to clawing the country back to something resembling sustainability.

Though perhaps not… Whether such cuts will be implemented is another question.

Inasmuch as Finance Minister Tito Mboweni has made clear the baleful fiscal position that the country has found itself in, he has also voiced frustration at the manner in which this has been received: "Demands for expenditure far outweigh revenue. What I think I find surprising is that no matter how many times one explains the constraints that we face on the income side, the demands on the expenditure side do not moderate."

The past few weeks have at least made that clear. Legislation defining the proposed National Health Insurance (NHI) has been introduced. Like little else since the 1990s, this seeks to change the face of healthcare in the country, establishing effective government control over the systems to deliver it. It is likely to outdo Eskom in its financial scale. Yet, breathtakingly, there is no (official) sense of what it will cost.

Health Minister Dr Zweli Mkhize has said that to ask about costs is "the wrong question". President Ramaphosa's advisor on the matter, Dr Olive Shisana, rather bizarrely, said: "The demand that the NHI Bill should indicate costs is unfair because costs change over time." Strangely, she also claims that the additional taxes needed will be lower than medical scheme contributions. In any event, fiscal realities do not feature prominently.

Ominously, some in government are eying another way out. Central to this is the idea of expropriation without compensation, something articulated in the language of land reform, but ultimately applicable to so much more. This is to try to mandate its way out of trouble – and increased latitude on the part of the government to seize assets has enormous attraction to politicians who have never reconciled themselves to the idea of property rights.

Indeed, rather than a move on land and livestock, this may take the form of commandeering savings and pensions. There has been much talk of the possibility of prescribed assets for "developmental" purposes. In Parliament recently, Ramaphosa danced around the issue, refusing to commit himself in plain language. But ultimately, the direction was in favour of doing so: "We need to have a discussion as a country. We are faced with a situation where our financial resources have been depleted, and quite often pension funds make good returns on infrastructure development projects … let's have a discussion."

It's hard to see in that something other than a conversation structured around the terms on which the government will appropriate what it feels it needs. The fact that the depletion of "our" financial resources owes a great deal to the quality of stewardship that the government has exercised so far will not reassure those who have struggled to save and provide for themselves.

This may postpose a fiscal reckoning for the state, but offers nothing beyond a palliative. For South Africa's people, it means the ongoing insecurity of an abusive political economy.

Above all, pursuing short-sighted extraction to prop up a flawed system (and by so doing, dodging the hard choices) compromises the essential element of a real solution, a rapidly growing economy.

An inflection point? Perhaps. What the country's political elite chooses in the coming months will weigh on South Africa for years to come.

- Terence Corrigan is a project manager at the Institute of Race Relations.