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Godongwana’s ‘shadow boxing’ masks deep financial crisis

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Picture: Ayanda Ndamane / Independent Newspapers / Taken on February 21, 2024 – Minister of Finance Enoch Godongwana delivers his Budget 2024 in Parliament on Wednesday.

By Bonke Dumisa

Minister of Finance Enoch Godongwana is proud of his trade union background but one thing he had not told us before is that, coming from the Eastern Cape boxing environment, he is also a master of shadow boxing, judging by the manner in which he delivered his 2024 Budget speech.

This was a speech that was highly anticipated, given that it was going to be presented before this year’s national and provincial elections when a combination of more than 350 political parties and/or independent political wannabes are promising lots of freebies,as if money grew on trees.

The major challenges facing the finance minister with the Budget were the economic woes facing the country owing to the problems caused by Eskom’s load shedding, Transnet’s

logistics challenges, many other state-owned enterprises requiring bailouts, corruption, high unemployment rates, lawlessness in the country and other factors that are negatively affecting our economic growth rates.

The country has had continuous budget deficits over the past financial years. This has resulted in the government raising many loans. The government debt is above R5 trillion and will rise to above R6 trillion by 2026.

A major question was how Godongwana would address unsustainable high expenditure levels and lower revenue levels than budgeted for while reducing the government debt.

To complicate things further, Parliament has approved the National Health Insurance (NHI) Bill mainly passed for purely ideological reasons even though there has not been clear information on how it will be funded.

It was clear that the ANC wanted the NHI Bill signed by President Cyril Ramaphosa now so that the voting public could be excited that the ANC has provided this greater access to health care for all. This is, however, not affordable.

It is against this background there were big debates on how the government would fund all the challenges.

Some were saying we must significantly cut our expenditures; most workers criticised the “austerity measures” and were actively campaigning against this route; hence we saw the “unemployed doctors” marching in protest against the government in KwaZulu-Natal.

Others were saying that VAT must be raised. The problem with this option is that VAT is regressive, hence negatively affecting the poor more than the high-income people or the rich.

Others were saying that income taxes, corporate taxes and other taxes must be raised. The problem with raising income taxes is that we have a diminishing pool of taxpayers who pay taxes. There are fewer than eight million individuals who pay personal income taxes. Compare this to more than 28 million people on various social grants.

Some financially informed people suggested that the government should raid the Reserve Bank’s Gold and Foreign Exchange Contingency Reserve Account which is valued at about R500 billion. I was opposed to this option on the grounds that “you must not resort to contingency reserves for operational expenditures”.

Knowing how damaging some of the above suggestions may be to its electioneering, it is clear that the ANC opted to avoid tackling the budgetary items which were going to be viewed negatively by the wider South African electorate.

Godongwana was cagey on where the government would get the money to fund the unsustainable expenditures.

Of the options discussed above, only the Gold and Foreign Exchange Contingency Reserve Account route was partly followed. The National Treasury would use R150bn from the account to offset some of the high government debt challenges.

No income tax increases were announced. No VAT increase was announced. Apart from the R1.4bn that was allocated to the NHI, not much else was said about it.

An amount of R765bn was allocated to the Peace and Security Cluster, which will also help to recruit at least 10,000 new police officers. The major reason given for this was to fight the high levels of lawlessness.

It was mentioned that, in fighting illegal mining, the government might use billions of rand from the Special Account. The money received from the forfeited assets of people accused of having profited from the proceeds of crime is deposited in this account.

The R57.6bn more added for the salaries of teachers, nurses and doctors, among many other critical services, may, at face value, seem impressive that the government is prioritising critical scarce skills. However, digging further, it becomes clear that the money can be linked to the unsustainable salary increases of more than 7.5 percent that the government gave to the public servants last year.

It was clear that the government could not afford to alienate the voting pool so close to the 2024 national and provincial elections.

The R61.4bn allocated to employment programmes includes R7.4bn for the Presidential Employment Initiative. This is okay for those who will benefit from the employment initiatives. But this will hardly dent the high unemployment rates in South Africa; for us to significantly reduce the rate, we must overhaul our education system to produce people who are fit for purpose for our economic needs.

It was disappointing that Godongwana did not say much about why he specifically mentioned that a private partner has been secured to upgrade Pier 2 of the Durban Container Terminal. All he added was that this should increase private investment in equipment, enhance technological capability and improve operational efficiency.

What Godongwana also needed to say was that they needed outsiders to come and show that the lower efficiencies at our ports, being run by Transnet, could easily be linked to the general culture of entitlement in our country where the issue of productivity was hardly part of the agenda in the workers’ minds.

It was noticeable that Godongwana warmed up and spoke enthusiastically when he announced that the old-age social grants would be increased by R100, the disability grants would be increased by R90 and other social welfare grants would also be appropriately increased, although he was non-committal on the issue of the R350 Social Relief of Distress grant.

He was equally jubilant when announcing increases in excise duties:

  • A can of beer increases by 14 cents.
  • A can of cider and alcoholic fruit beverage goes up by 14 cents.
  • A bottle of wine will go up by 28 cents.
  • A bottle of fortified wine will cost an extra 47 cents.
  • A bottle of sparkling wine will cost an extra 89 cents.
  • A bottle of spirits, including whisky gin, or vodka, increases by a whopping R5.53.
  • Also proposed were increases of tobacco excise duties by 4.7 percent for cigarettes and by 8.2 percent for pipe tobacco and cigars.
  • A R9.51 increase for cigars.
  • A 97 cents increase for a pack of cigarettes.
  • An extra 57 cents for pipe tobacco.

What all ministers of finance do not mention when they set the excise duties at the Budget speech presentation is that excise duties are paid by the manufacturers, producers or distributors of such tobacco or alcoholic beverages upfront before the products are sold to the public.

Governments use such excise duties as sources of additional revenues and, more importantly, in their efforts to combat the negative effects of such products on the society.

Prof Bonke Dumisa is an independent economic analyst