PREVIEW
Budget wins a few friends as Treasury prepares for court battle with unions over wage freeze
All but the most hardened critics of the African National Congress government on left and right gave Finance Minister Tito Mboweni's budget on 24 February pass marks, mainly because they had been expecting much harsher measures (AC Vol 62 No 5, Mboweni's budget choice – austerity or bust).
Economists are sceptical about Mboweni's commitment to restructure the economy, saying most of his promised reforms are still to be implemented. Neither has the government resolved the core issue of a public sector wage agreement. Treasury wants to cut the public sector wage bill by 144 billion rand ($9.6bn)over the next three years.
That plan is still locked in the courts with trade unions suing government for abandoning earlier commitments on higher rates and better conditions. The fight is bitter and personalised. Union leaders want President Cyril Ramaphosa to sack Mboweni as part of an upcoming reshuffle.
Yet there is no sign that Reserve Bank governor Lesetja Kganyago, a stern technocrat and Mboweni's likeliest successor, would be any more generous to the unions.
Pushed on the matter after the budget, Ramaphosa backed Mboweni again and denied any big cabinet changes were in the offing. For good measure, Kganyago congratulated Mboweni on a 'bold budget' for cutting state borrowing that was crowding out the private sector.
There are also fears about the effects of the economic slowdown on revenues as the Treasury faces growing pressure to fund social programmes. Mathematics and a Treasury forecast helped this time. Mboweni seized on a bonanza in the form of an extra R100billion ($6.8bn) in revenues over earlier projections to abandon generalised tax rises of some R40bn.
Mboweni sent a signal, cutting company taxes 1% to 27%, for the first time for 12 years, as part of wider reform of revenue raising. He raised taxes on fuel, alcohol and cigarettes, and a new tax on scrap metal exports.
His longer-term aim of getting the budget deficit down to 6.3% of GDP by 2023-2024 from current levels of around 14%, met with scepticism. Moody's ratings agency, which downgraded South Africa in November, said pressures on the government from the slow pace of economic recovery as well as the financing demands of state-owned enterprises would work against reducing state borrowing.
Lower allocations, per capita, for state spending on health and education – although Mboweni announced R10.3bn with another R9bn in reserve to fund the vaccine programme – show the difficult trade-offs the Treasury is making.
And it seems that it is Treasury, rather than any other department, that is making these tough political choices as it struggles to meet financial targets, such as cutting state debt, over the next three years. Other ministers and departments criticise the Treasury role but none have come up with alternatives. That battle is yet to be fought (AC Vol 62 No 1, Challenging the statist quo).
Copyright © Africa Confidential 2024
https://www.africa-confidential.com
Prepared for Free Article on 22/12/2024 at 08:56. Authorized users may download, save, and print articles for their own use, but may not further disseminate these articles in their electronic form without express written permission from Africa Confidential / Asempa Limited. Contact subscriptions@africa-confidential.com.