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The Budget’s reality gap
William Saunderson-Meyer
William Saunderson-Meyer says our GDP per capita is now lower than in 2007, and the ANC is still refusing to reform
JAUNDICED EYE
A Treasury Budget that is divorced from reality is a futile exercise. It’s a wish list, not an executable plan.
Unfortunately, the ties between the national Budget and reality have over time become ever more tenuous. It’s an untethering that started during the presidency of Jacob Zuma and accelerated under Cyril Ramaphosa.
All Zuma wanted from the job was to funnel Treasury resources into cadre pockets. His only folie de grandeur was a thwarted attempt at an astronomically expensive nuclear build. This, in any case, was less about leaving some kind of infrastructural legacy than it was an attempt to open the Treasury spigots more fully and to settle the African National Congress’s IOU chits with the Kremlin.
His successor, Ramaphosa, is the slick operator — after all, he mastered the mechanics of obfuscation while he was Zuma’s deputy — and a devotee of the ‘don’t kill the golden goose’ school of corruption. After six lacklustre years as president, his only real achievement has been to throttle back somewhat on the ANC’s state looting in an effort to make it less obscenely blatant.
What he lacks in abilities, Ramaphosa makes up for in airs and ambitions. It is the dangerously persuasive Ramaphosa who fantasises about bullet trains and smart cities. And it is, of course, the deluded Ramaphosa who warbles on about 3% growth, South Africa being ‘open for business’, and the utopia that the National Health Insurance project will deliver. All are fantasies, shallowly rooted in the real world.
That reality gap — the difference lies between dreamy intentions and South Africa’s dismal and deteriorating fiscal situation – is starkly evident in the annual Budget.
Over the 15 years from when Zuma took power in 2009 up to 2024 when Ramaphosa won his second term, South Africa’s Gross Domestic Product (GDP) has grown about 25% from $296 billion to an estimated $373 billion. However, had it grown at the compounded rate of the official projections upon which successive over-optimistic Finance Ministers relied to compile the annual Budget, it would be almost 75% bigger.
That’s not the worst of it. The real ‘ouch’ statistic is that GDP per capita was $6,253 in 2023 (the most recent year for which we have firm figures), down from $6,662 in 2007. Let that sink in. We’ve lost 17 years because of ANC corruption and economic illiteracy.
Compare this to Egypt which, over about the same period, grew its per capita GDP more than threefold to $4,981, while Vietnam shot up almost fivefold to $4,154. In contrast to South Africa’s puny 75% increase in national GDP, Egypt grew its economy over that period by about 350% and Vietnam grew by about 450%. Such is the price of being shackled to the ANC’s idiotic economic policies.
This week’s second attempt by Finance Minister Enoch Godongwana to table a Budget that passes parliamentary muster must be judged against an ANC-managed economy that has been pauperising our people and is now in desperate straits. As I wrote last week, time is of the essence.
There has to be a commitment to the privatisation of state-owned entities and a timeline for it to happen. The above inflation increases to public service workers have to be rescinded. The skills development agencies, which operate as ATMs for corrupt cadres, have to be shuttered. The burden that failed black economic empowerment (BEE) policies place on public procurement has to be reduced.
But instead of getting to grips with unpleasant realities, Wednesday’s Budget speech was just another rendition of the ANC’s favourite pastime, magical thinking. It is premised on assumptions that the national debt will stabilise, that the public service will shrink, that state-owned entities will function without needing bail-outs — or ridiculous laws forcing consumers to use the Post Office instead of couriers — and that dysfunctional and corrupt municipalities and government departments will be transformed.
A 5.5% above-inflation for public servants was justified by an expected 30,000 reduction in the number of high-earning government employees opting for an early retirement package. Health got an extra R29 billion of which about R10 billion was earmarked for NHI groundwork, but Godongwana didn’t even mention the hole left in public finances by President Donald Trump’s ending of financial aid.
It’s a big hole. The PEPFAR programme for combating HIV/Aids is worth R8 billion annually, as well as about R6 billion in other health and humanitarian aid. Nor was any mention or provision made for the possible end to South Africa’s participation in the US Growth and Opportunity Act, which could put at risk an estimated 93,000 direct jobs and 250,000 indirect jobs, in agriculture and the motor sector.
The Budget allocated all of R5 billion to support the ill-fated South African-headed Southern African Development Community Military Mission (SAMIDIRC) to the Democratic Republic of the Congo. Too little, too late. The SANDF troops, outgunned and lacking air support, have been surrounded for almost two months and 14 lost their lives. On Thursday, the mission was terminated and now come the humiliating negotiations to extract men and materiel.
Most importantly, Godongwana’s charade fails to address adequately the crunch issue — the proposed VAT increase that the Democratic Alliance and other opposition parties had made clear would cause them to vote against the adoption of the Budget and possibly sink the Government of National Unity (GNU). VAT will still go up, albeit at a lower rate and phased in. Instead of a two percentage point hit, it goes up half a point this year and another half a point next year.
The DA’s concerns are not silly quibbles. Many commentators don’t seem to comprehend that a one-point increase on the existing 15% rate, is an almost 7% hike. Not great for inflation and already flat wallets
The revenue side of the Budget equation is similarly unimpressive. Liquor and tobacco taxes go up, inevitably increasing the incentive among the poor not to drink and smoke less but to support the already booming illicit booze and ‘bacco markets. Revenue Service gets more to improve its tax collecting tool but the obvious target, the militant taxi sector — estimated in 2019 to have an annual turnover of R90 billion and annually paying only R5 million in taxes — remains unchallenged and untapped.
The ANC’s disdain of the DA — its most important GNU partner and the one without whose support the Budget will not pass in Parliament — runs deep. The DA notion that because it held the whip hand of the Budget, it could bargain its support on VAT to extract concessions on other matters, such as a full and binding review of public spending, the Expropriation Act, the National Health Insurance Act, and BEE, is proving to be wrong.
Godongwana told a pre-Budget media briefing that the DA was attempting to ‘twist the government’s arm’ on these policy issues. ‘One of the issues they highlighted was that they have lost a couple of battles and it is creating tensions within their party, and therefore they want to win something. So it is not surprising that their submission to the president includes things that are outside the budget, including the expropriation issue.’
The following day, during a News24 webinar, Godongwana attacked the DA for ‘campaigning’ against the Budget and ‘compromising’ the Treasury by saying ‘This is an ANC Budget.’ ‘What they have done, which is bad for the GNU, is constitute themselves as an opposition within the GNU. This breaches all the protocols of the Cabinet.’ In other words, what the ANC wants is the international credibility and parliamentary majority that the GNU provides but it is adamant that it will not shift an inch on its policies.
While it’s to be expected that the DA would struggle to get the ANC to make concessions on ideologically loaded issues like expropriation and race quotas, it now appears it cannot even get it to make policy adaptions that are self-evidently necessary to prevent the economic slide from becoming an avalanche. This, again, puts the DA in a dilemma regarding its participation in the GNU, with a steadily widening gap between what it had hoped to achieve in the GNU and the reality.
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