– by Piet le Roux –
In the run-up to his medium term budget speech, latest Finance Minister of South Africa, Tito Mboweni requested input on Twitter this weekend: what can he do to “annoy the Establishment”? Just who exactly he, ex Reserve Bank governor and senior figure in the ANC and government, has in mind with “the Establishment” remains to be seen.
When Mboweni presents the medium term budget on 24 October, he will be only two weeks into his term. Though possible, it would be unusual if major changes are announced for straight-away implementation. The mini budget, more than anything else, is typically an interim report on state finances six months after the annual February budget, coupled with some projections and revisions to assumptions on which the original budget was based. Since most of the work for this would have already been done, and there typically isn’t much one can do to change history (except rewrite it, but two weeks is a short time even for that), Mboweni’s influence on the mini-budget will in many ways be limited.
Yet, the mini budget is also about prepping the market and government departments for some of what is to come. And, as a new broom, Mboweni will give us the first official and systematic indication of how he wants to sweep, or, as he called it last week in another tweet: “Using the budget strategically to transform the economy.”
In the days and weeks ahead, much time will be spent, as it should, on trying to gauge the direction the Mboweni treasury puts the country on. Detailed analyses will be done, projections and assumptions will be questioned, and, of course, many will ask whether enough was done to prevent the long-expected downgrade of the South African state’s sovereign debt. Along with others, Sakeliga will be doing this and more, but it shouldn’t let us lose sight of the primary question in evaluating Mboweni’s likely influence on the economy: what is his vision for the size of government?
On the one hand, Mboweni might turn out to be a man of his tweets. This would be the case if he confirms as finance minister his support on social media for extreme and interventionist policies. Policies he has publicly suggested in recent months include a 40% state ownership of mining companies, a state bank, a sovereign wealth fund, and significantly greater state ownership of land.
It might also be instructive to note from where he draws intellectual inspiration for his speech. Will it be the kind of junk status recipes that he had been enthusiastically recommending to his quarter million twitter followers this year? The last thing the economy and the treasury needs is a finance minister who proudly draws his policy insights from Marxist-Leninist theory, the national democratic revolution and radical economic transformation. And then there are his racialist and pan-African sympathies, such as in the case of land redistribution: “The Land in Afrika belongs to Africans!! (sic)”.
The more his speech echoes these tweets, the clearer it will be that his vision for government is an inflating one. And as long as this vision is fundamental to his term in office, then great should be our concern, for along with it he will inevitably misdiagnose the country’s ailments and be unable to do what must be done to avert fiscal and economic crises.
On the other hand, Mboweni might recognise the looming fiscal and economic crises for what they are. The South African state is experiencing serious fiscal stress. It has exhausted the runway provided by the high tax revenue years preceding the financial crisis of 2008/9, as can be seen in figure 1.
From Gordhan through to Nene, and with everyone in between, finance ministers have for many years now been presiding over financial management from local municipal level to the highest echelons that would have had anyone in the private sector fired, if not prosecuted. Not counting significant off-balance sheet items, such as government guarantees of parastatals such as Eskom’s debt, the South African government has accrued between R100 billion and R250 billion in debt per year for the past decade (see figure 2). This year’s budget deficit is currently projected at nearly R200 billion. State expenditure is currently projected at over 30% of GDP while tax income is nearing 27% of GDP.
That tax revenue has fallen off a cliff isn’t a bad thing in itself but, in this case, it points to a deeper economic crisis and not simply a fiscal one. The basic fact is that government is crowding out South Africa’s real economy. And the only way to rectify this situation is with real and deep expenditure cuts in order to stabilise the fiscal position and free up resources for proper, non-bureaucratic use in the private economy.
If Mboweni is willing to face the fiscal and economic crises, he would speak of tax restraint in order to stimulate the economy, expenditure cuts in order to halt the slide-away into debt, and reforming state procurement to make it less race-based and more efficient. He would not be deterred by the bizarre outcome of the recent so-called Jobs Summit, where it was announced that public sector employment won’t be decreased. (This, contrary to earlier rumours from inside president Cyril Ramaphosa’s cabinet of a 30 000 jobs cut over three years).
He would hold on to those more prudent, even if contradictory and less often expressed, views that have also found their way to this Twitter account, such as cutting the state’s wage bill, expanding ownership and title deeds, and closing down SAA. Sentiments such as these – and sentiments would at this stage probably be enough to justify him some qualified praise, given the constraints of his brief tenure – would be positive in important ways. Fundamentally, it would be positive because it signals his realisation that first and foremost government has to be deflated, not come up with new stimulus plans or new failed enterprises such as a state bank.
Where Mboweni takes the Treasury on Wednesday remains to be seen. If he heralds deep spending cuts and the freeing-up of resources for the private sector, we might get our hopes up. If he, instead, preaches what he tweets, and confirms his faith in greater government intervention (this time it’s different!) we should be weary indeed.