Article by Daniel Silke: Mboweni’s rough yet risky Budget - Feb 21 2019
Tito Mboweni’s first full Budget was a curious affair.
On the one hand, it should be seen as a pre-election event designed to pacify most constituencies with a view to shoring up support in the coming May election. But it didn’t stop there, and fairly boldly explored a new narrative on economic policy seemingly being tested by both President Ramaphosa and Minister Mboweni himself.
Firstly, this was ultimately a budget of bad news without any real corrective action possible. It was always going to be a report-card on recent history and the cumulative effects of gross mismanagement, malfeasance and policy stagnation. The figures presented by Mboweni bore this out.
Another downwards revision of GDP to 1.5% this year indicates just how tough it is. But when you factor in a substantial drop in tax revenue, a whopping R1.2bn borrowed each working day to cover debt repayments, and the worst budget deficit in a decade, now well over 4%, you quickly realise the mess we're in.
Even more worrying was a rise in our debt-to-GDP ratio to just about 60%.
Now, out of an election year, the only way to possibly tackle these issues is to be punitive and increase taxes. But there is no more room to manoeuvre, since the punitive measures were all used up last year – and no political party worth their salt would raise taxes on a few months before a fiercely contested national election.
As a result, little could be done in terms of covering the shortfalls. We are left to stew in this malaise for another period of unknown length – perhaps until well after the election, when a new Ramaphosa mandate allows for a greater spring-clean of personnel and policy.
Against this rather dismal background came some fairly dramatic surprises – most centered around the status and performance of state-owned-enterprises (SOEs). And it’s here that the Budget diverged from what we had grown accustomed to under the ANC.
READ: Support for Eskom threatens govt spend and debt, MPs hear
Mboweni had questioned the ownership of SOEs before. But it was always going to be risky to raise the issue at a national Budget when just the mention of the word ‘unbundling’ conjures up absolute terror in the mind of state-owned enthusiasts like the trade unions.
Still, he doubled-down on the issue, stating: "Isn’t it about time the country asks the question: Do we still need these enterprises? If we do, can we manage them better? If we don’t need them, what should we do?" This is perhaps the most significant statement on reviewing decades-long ANC economic policy yet heard since 1994.
Unsurprisingly, Mboweni’s words were loudly applauded by the Democratic Alliance. A little less excited were his own caucus members, who must’ve been quite shocked that this issue would once again threaten the cohesiveness of the Alliance just as heavy campaigning for May 8 begins. The ANC is under pressure and the last thing the party needs is dissention within its ranks on such a key issue.
READ: From Eskom to tax, this is Mboweni's budget in a nutshell
It would seem, therefore, that both Ramaphosa and Mboweni are keen to exact change – or at least heap pressure on the teams now entrusted with the turnaround at Eskom and beyond to SAA, the SABC and others. By floating a review of state ownership, it’s enough to whip some bureaucrats into shape to get things done!
But then there’s more, as the TV advert says. A more limited cash injection to Eskom of R69BN over three years is a lot less than what might’ve been desired. Add to this a number of conditionalities on future disbursements and it was a tough day at the office for the SOEs. Clearly, government has decided that it’s business unusual and they are willing – albeit cautiously – to take some political risk on the matter just before the elections.
Whilst the ANC caucus were left uncertain of all of this, the currency markets lapped it all up. Not for a long while had the rand rallied during an actual Budget speech. The markets liked the apparent philosophical or ideological pliability coming from Mboweni.
However, the jury is still out on whether Moody's will accept the greater SEO vigilance especially in the light of further fiscal erosion. In this way, the Budget was more than just going through the motions – it actually provided a talking point.
The real pity of it all, though, was that by 16:00, when it was all over, there was little practical take-home for the average South African facing decreasing household expenditure and declining real incomes.
Taxes will still be onerous, thanks to bracket-creep and yet another ill-considered fuel levy that runs the risk of further dampening consumption expenditure, just as the oil price looks set to rise further. And, other than the SOE discussion, there was nothing in terms of broader macro-economic policy and incentivising small business entrepreneurship, despite a welcome reference to eliminating unnecessary regulation and red-tape. With a GDP moving South – at least for 2019 – there was nothing – regretfully – stimulatory at all.
Significantly, this Budget will become an issue of contention for the 2019 election. The ANC will have to defend and clarify the rather vague views from Mboweni (and even the president) on the unbundlings, splitting and hiving off of business units of some SOEs. The problem is that Mboweni and Ramaphosa (and probably Gordhan) are well ahead of the broader ANC caucus. And, unless they bring the party formations on board, this could all end nastily for the governing party.
Whilst this was still a Budget that left us in limbo, it watered further some seeds of policy shifts that require substantial political will and courage. As a theatrical production, it satisfied most of the audience in Act One. But the resolution of this all in Act Two (after the election) will be much more difficult to resolve.
Daniel Silke is a political analyst, author and keynote speaker. Views expressed are his own.