MTBPS Analysis: Gigaba’s bleak numbers amid the politics of the mini budget

The numbers are easy, if dire. The South African Revenue Service (SARS) again missed its tax collection target, this time by R50.8-billion, the highest shortfall since 2009 and well above what economists had predicted. But R13.7-billion is needed for SAA, which had already received R5.2-billion from taxpayers’ money between June and September, and the South African Post Office, like Eskom, remains a “significant risk to the entire economy”. Government borrowing is ballooning, with its debt reaching 54.2% of gross domestic product (GDP) in 2018 and going up to 60.8% forecast for 2021/22. Effectively that means government will spend 15 cents in every rand to service its debts, the largest Budget expenditure, at a time when economic growth has been slashed to 0.7%.

There was little wiggle room for Finance Minister Malusi Gigaba. “It is not in the public interest, nor is it in the interest of government, to sugar-coat the state of our economy and the challenges we are facing,” he said. “It is only when we understand these challenges fully and candidly that we will know what to do... as well as what trade-offs we must make in the national interest.”

Not so easy are the politics. As is so often the case in the ANC and its government, the diagnostics are dead right. What’s less clear is what actually is being done. One complicating factor appears to be a tendency towards governance by committee, or collective. And for MTBPS 2017 this collectivity was ramped up by significant if quietly introduced changes to the budgeting process. Those changes can be seen to underscore the narrative of State Capture in the National Treasury, triggered in no small part by the controversial March midnight Cabinet reshuffle that saw Gigaba replace the well-liked and widely respected Pravin Gordhan at the helm of the finance portfolio.

MTBPS 2017 unfolded against the introduction of a Mandate Paper process to set priorities under the auspices of the Minister in the Presidency, Jeff Radebe. “The Mandate paper is an instrument for budget prioritisation, and the process through which it is developed will be strengthened as part of the process of institutionalising planning, which includes the introduction of legislation,” Radebe said in a public statement in September after Cabinet approved what is called its Mandate Paper 2018. It lists eight priorities from job creation and small business development to youth development, infrastructure, land reform, comprehensive social security, education and skills, alongside fighting crime.

Echoing the ANC 2014 election manifesto pledges, these Mandate Paper priorities also emerged in Wednesday’s MTBPS. Less clear was the role of the presidential committee, a team of ministers including Gigaba, all reporting to President Jacob Zuma. That committee was obliquely referred to in the MTBPS documentation as “a team of Cabinet ministers reporting directly to the President”, which would “develop proposals to stabilise national debt… (t)hese will include proposals to narrow the deficit, stimulate economic growth and build investor confidence”.

These changes have a significant potential impact on the national purse. Up to now, the budgeting cycle, which starts with departmental wish lists some 10 months before the Budget is tabled in February, was headed by a ministerial committee under the auspices of the finance minister, supported by a technical committee of directors-general. It was a process driven by National Treasury, cognisant of the decisions by the twice-yearly Cabinet lekgotlas which follow those of the governing ANC.

Given these changes to the budgeting process, Gigaba had to part with some of the powers and discretions previous finance ministers had in line with Section 216 of the Constitution, which entrenches Treasury control. National Treasury must enforce compliance with measures “to ensure both transparency and expenditure control” and may stop the transfer of funds to any organ of state that “commits a serious or persistent material breach of those measures”.

On Wednesday Gigaba told the traditional media briefing ahead of the MTBPS delivery that the presidential committee was there only for “assistance” in the difficult decisions taken and yet to be taken.

At that briefing it was also let slip that government is looking into an equity partner, effectively private sector cash and skills, for SAA as per a Cabinet decision, and would finalise by March 2018 a list of possible assets to be disposed off.

Neither was reflected in the MTBPS, which announced one decision – the sale of a portion of government’s just short of 40% Telkom shares, the lack of details of that decision indicating governance challenges at the highest level.

Cabinet has known since 22 August that the sale of government’s 39.76% shareholding in Telkom, valued at around R14.4-billion, was “the most viable option” to raise funds to pay for the much needed bailout of SAA. Those details emerge from “Cabinet Memorandum 17 of 2017”, seen by Daily Maverick, despite the bitter pill of losing up to R800-million in annual dividend incomes from those Telkom shares. Yet despite the advanced planning, the finance ministry tip-toed around the political embarrassment caused by DA MP Alf Lees’s revelation of this asset disposal plan. Deputy Finance Minister Sfiso Buthelezi and National Treasury Director-General Dondo Mogajane subsequently told Parliament’s finance committee that various options were on the table.

Perhaps there is something to be said that there was a decision of sorts actually taken amid governance by committee under Presidency supervision and amid the factional battles ahead of the ANC December national elective conference.

The politically astute Gigaba gave a nod to radical economic transformation, a vocal demand in some ANC circles, but also a nod to inclusive growth coupled to economic transformation. “Our starting point therefore is that economic growth and transformation are mutually reinforcing principles,” Gigaba had said. “There should be no doubt that an economy that grows should ensure that all our people live productive, prosperous and dignified lives. The economic exclusion of a vast section of the population undermines the realisation of the constitutional vision of a more equal society.”

But the political and budget governance dynamics left Gigaba with little new to say, except to re-emphasise the co-called “confidence building measures” announced in his 14-Point Plan in July, including State-owned Entities (SoEs) governance reforms. By Wednesday the finance minister showcased a government commitment to action the appointment of a new SAA board and permanent CEO alongside a commitment to replace the board of financially troubled Eskom as previous announcements on an inquiry into the price of broadband and spectrum auctions were also repeated. And Gigaba indicated as much: “(M)any of these reforms are already part of the government’s existing work programme. It is not a lack of planning that is letting us down.”

The reality is that Gigaba could not have not spoken about SoEs, given the SAA bailouts and multibillion-rand demands by other finance and governance troubled SoEs and #GuptaLeaks and the leaked emails outlining State Capture, particularly at SoEs, through dodgy dealings, in a web of connections involving the Gupta family, companies and business associates to high-level officials and even ministers.

He chose not to mention State Capture when talking about SoEs, but rather “several worrying developments… with worrying trends of governance failures, corruption, operational inefficiency and the need for government bailouts”, while emphasising their developmental role to drive economic transformation as per government priorities.

“As the shareholder, we (government) are tired of being dragged into crisis by those we employ to govern and manage state-owned companies. This must end,” said Gigaba. “The trend of SoEs seeking bailouts to finance operational expenditure, inefficiency and waste must also be brought to an end.”

Opposition benches, minus the EFF which had walked out, heckled Gigaba loudly at that stage, and not for the first time. The EFF earlier had made its point much more bluntly and vocally even before the finance minister stepped up to the podium in the National Assembly. “We can’t allow Mr Gigaba to address Parliament because he’s the sole reason why we have State Capture,” said EFF MP and national spokesperson Mbuyiseni Ndlozi. “Parliament can’t be seen to legitimise what essentially is a Gupta stooge. He’s the extension of Mr Zuma in the National Treasury.”

Those opposition parties who remained afterwards were less than impressed. The MTBPS was “flat” and a speech for the December ANC national conference, according to United Democratic Movement (UDM) Chief Whip Nqabayomzi Kwankwa. “Short on details” and lacking any real statement to boost confidence was the assessment of IFP Chief Whip Narend Singh. DA MP Alf Lees said it was “a missed opportunity” – his party colleague David Maynier put it more bluntly as “a horror” – that repeated much of what was said before. Cope leader Mosiuoa Lekota worried about the debt repayments that would be passed on to generations of children.

Labour federation Cosatu was “deeply disappointed” by a Medium-Term Budget Policy Statement (MTBPS) that “says nothing, proposes nothing and offers no hope” amid what it described as the worst economic crisis since 1994. Fellow alliance partner the South African Communist Party (SACP) said while the MTBPS sought to renew confidence, it was a limited achievement. “(It) does not necessarily erase the rot that has found its way up to the highest echelons of state leadership. Unless this problem is dealt with decisively… all measures to inspire confidence on money issues will be met with disbelief.”

But Gigaba hit the right political notes for the ANC. The party’s national spokesperson Zizi Kodwa welcomed a “focused, insightful, redistributive and people-centred” MTBPS, highlighting interventions to grow township and rural economies and to strengthen SoE good governance. The ANC parliamentary caucus welcomed “the engineering of a new growth and transformation model… anchored on a common vision for the economy and its society, that embraces sharing of economic resources and producing a South Africa that truly should economically belong to all of us that live in it”.

In the politics around the MTBPS such endorsement was important. The details of the “new path” Gigaba said was required did not emerge on Wednesday, nor did the decisiveness he invoked as necessary. And so, in the hope the ANC December national elective conference would ease factional politicking, the waiting game is on for next year’s Budget to deal with the hard issues – decisively. DM

Photo: Malusi Gigaba, Minister of Finance of South Africa at the World Economic Forum on Africa 2017 in Durban, South Africa, 4 May 2017. Copyright by World Economic Forum / Benedikt von Loebell