Godongwana has to juggle SOEs, social grants and public sector wages in a tight socioeconomic and political situation

24 Oct 2022

From debt relief for rolling power cuts conductor Eskom, to ensuring South Africa’s most vulnerable can stave off hunger with a continued R350 grant, Finance Minister Enoch Godongwana’s Medium-Term Budget Policy Statement is a political-financial juggling act.

More money is available in the national coffers, as tax collections came in better than expected — about R100-billion more, predominantly on the back of a well-performing minerals sector. It’s about half of what helped carry the February Budget and better than nothing, given the demands on the public purse and the crippling ripple effect of normalised rotational power cuts.

Finance Minister Enoch Godongwana has little actual manoeuvring room while having to sustain a sense of action from the ANC administration amid poverty, persistently stubborn unemployment and rising hunger that has been worsened by food price increases.

That’s in the absence of nuanced government policy that can tackle issues across portfolios — beyond coordinating diaries into actual qualitative implementation. Much governance decision-making is based in the Presidency, from employment stimulus, infrastructure and investment to climate change financing and cutting red tape.

This emerges starkly on the energy front. As Mineral Resources and Energy Minister Gwede Mantashe publicly makes pro-coal and pro-nuclear statements, South Africa’s renewable power and independent power producers programmes are lagging behind. Meanwhile, the Independent Power Producers Office, which is part of the Department of Mineral Resources and Energy, recently denied Eskom permission to implement two shovel-ready energy projects, Eskom CEO André de Ruyter told MPs on 19 October.

Such policy disjunct also appears in the public sector wage bill, which remains a central focus of government cost-cutting. But it’s not about numbers, or percentage increases, given the high reliance on public services and the public good in a country where joblessness hits 44%, and poverty and inequality run deep.

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According to the Public Economy Project, South Africa does not have an excess of public servants, especially in core service areas like basic education, health and policing. If bloating exists, it is in political and economic offices and administrative areas like regulation and cooperative governance.

Thus, reducing the number of civil servants to cut the public sector wage bill would remove teachers, police officers and nurses and cut service delivery to the most vulnerable.

The project cautioned against an either-or approach, particularly in the absence of clear policy tools to deal with government corruption and wasteful spending.

“Agreement on a broad package to moderate pay, increase headcounts and improve the effectiveness of public services is essential,” the project says, pointing to the need to protect quality core services, from police to teachers and nurses.

Revising collective bargaining to unfold by sector rather than across the public service would help “annual negotiations become more focused on the challenges faced by specific service-delivery sectors”.

Right now, with the 3% unilateral offering from the government, it’s heading towards a strike by the Public Servants Association (PSA) and mass pickets by the governing ANC’s alliance partner, the labour federation Cosatu. Cracks have emerged in the federation: the South African Democratic Teachers’ Union (Sadtu) seems ready to accept the offer, but not so Popcru, representing police and correctional services staff.

Such a fracture may assist the government in its stated aim of controlling the public sector wage bill — and it may turn out to be significant in the run-up to the 2024 elections.

Closer at hand, Wednesday’s Medium-Term Budget Policy Statement (MTBPS) is expected to signal the next steps on the public sector wage bill, and possibly also extra funding for the prosecuting services, now that the Investigating Directorate pursuing State Capture cases is to be made permanent within the National Prosecuting Authority.

Read more in Daily Maverick: “State Capture: Ramaphosa sidesteps cadre deployment, offers some existing and some new(ish) solutions”

Calls by Cosatu

Cosatu, meanwhile, has called for the Presidential Employment Stimulus to double its job creation to two million, for debt relief for Eskom and clear, determined action on corruption, including at local government level.

The R350 Social Relief of Distress (SRD) grant “needs to be extended, raised to the food poverty level, its administrative challenges resolved and used as a foundation for a basic income grant”, said Cosatu last week.

The National Treasury’s pursuit of fiscal consolidation needed to be reined in and its “reckless austerity approach” must be abandoned, the labour federation said in its statement on MTBPS expectations.

“The solution to the rising levels of debt is to stimulate the economy so businesses and workers are able to pay the taxes needed to fund the state. Government needs to tackle the billions lost annually to corruption and wasteful expenditure.”

DA MP and finance spokesperson Dion George has called on Godongwana to lower transport costs by cutting fuel taxes and to increase the range of VAT zero-rated foods, particularly chicken, which is a staple in low-income homes.

“Zero-rating bone-in chicken would cost approximately R3-billion, but experts have suggested the intervention would pay for itself through improved health, work and learning outcomes,” George said on Thursday.

In February, South Africa’s deficit stood at 5.7% of gross domestic product (GDP), and debt was expected to be at 75.1% of GDP in 2024.

Inflation reached 7.5% in August. Economic growth expectations are down. The International Monetary Fund predicts 2.1% growth in 2022 and 1.1% in 2023, while the South African Reserve Bank, in September, predicted 1.9% growth for this year, followed by 1.4% in 2023 and 1.7% in 2024.

Wednesday’s MTBPS, like previous Budgets, is expected to make much of fiscal consolidation, or the government policy to reduce deficits and reduce the accumulation of debt.

That’s all good and well, and is undoubtedly needed to reassure markets. But it’s not enough. Just as it’s not enough to keep on announcing ribbon-cutting ceremonies and plans instead of providing consistent, quality service delivery.

A market-focused, fiscal consolidation MTBPS would stand against a more complex “real” one, according to Intellidex analyst Peter Attard Montalto.

“We see an SRD grant extension through next year, as the grant, in effect, becomes permanent and creates future ratchet risk — an implicit VAT hike will be pencilled in, we believe, to pay for it. All other manner of peccadillos will be swept under the revenue over-run carpet.”

Troubled SOEs

While the public sector wage bill remains problematic, so is the status of state-owned enterprises (SOEs), where bailouts and tough love must go hand in hand, according to Attard Montalto.

The list of financially troubled SOEs is long.

It includes Transnet, where, it recently emerged, more than 60% of the enterprise’s money is spent on labour, and Eskom, where most of the R400-billion debt is government guaranteed and a default could turn into a cross-cutting call-in of debt of other SOEs. South Africa simply does not have that kind of cash.

Yet armaments manufacturer Denel, which has battled to pay full salaries to all its staff, needs a R3-billion bailout, or cash injection or “equity to breach funding gaps”, in government jargon. The Land Bank, which over the past three years received some R10-billion in bailouts, still had R1.5-billion in government-guaranteed debt, MPs were recently told. Public broadcaster SABC needs billions, as does the Post Office, which effectively is no longer a going concern.

SAA needs about R3.5-billion to get out of its current limbo of having exited business rescue 18 months ago, but not yet being sold under the long-standing private purchase deal.

In an ANC elective year, and less than two years before the 2024 general elections, the finance minister has a tough juggling act. And given the deteriorating economic situation — also globally with the ongoing Russian invasion of Ukraine affecting energy, and produce like wheat and fertiliser — it may not be the soft landing Godongwana got eight months ago in his maiden Budget. DM

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Politics

Calls by Cosatu

Troubled SOEs