Business prevails as Godongwana cuts public spending to minimum

In the ongoing ideological battle to be heard by the government between labour and business, the latter wins this round as Minister of Finance Enoch Godongwana cuts public expenditure to the bone.

He chopped public spending by R21 billion in the current financial year and further plans to cut a whopping R64 billion in 2024-25 and R69 billion in 2025-26.

The minister proposed trimming the public service and widening the scope for private-public partnerships in state capital projects and investment.

Public spending

Political economy analyst Daniel Silke said business was smiling after the minister’s medium-term budget policy statement delivered yesterday. Silke said the announcement that he might increase taxes next year was a clear sign that the country’s financial situation was dire.

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He pointed to private sector participation, both in funding and infrastructure development, as significant.

“The outcome will be clearer institutional arrangements for the private sector to invest in public infrastructure, an increased pipeline of credible infrastructure projects and greater access to financing underpinned by effective delivery mechanisms.”

The Treasury regulations and key municipal laws were being amended as recommended in a completed review of the public-private partnerships framework.

The concessions to capital is the worst news for the ANC’s left partners, especially public service unions crying about the devastating impact of austerity on the workers and the poor.

The unions hoped the minister would come up with alternatives to reducing the public service, which is their membership. Instead, he opted to be friendly to capital, which favours his austerity approach, leaving the Left in the lurch.

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The only thing close to the interests of the Left was that R34 billion was set aside to extend the Covid social relief of distress grant by another year.

Over the medium term, a provisional allocation is retained while a comprehensive review of the entire social grant system is finalised.

Basic income grant

Civil society partly would have liked to hear him announcing the basic income grant for the unemployed the ANC has promised. He was concerned that limited public sector capabilities eroded public trust in public institutions and wasted scarce public resources, which impacted service delivery and economic growth.

ALSO READ: SA has two choices: cut back spending or face financial crisis

A move was thus underway to reconfigure the structure and size of the state, in line with the president’s commitment in the 2023 State of the Nation Address. The minister appeared to be concerned with dealing with the public spending crunch due to the fast-depleting fiscus.

He said the budget recognised that government must respect budget constraints and preserve sustainability of government services that are being crowded out by debt service costs. Government spending has exceeded revenue since the 2008 global financial crisis.

The rising annual budget deficits will force government to borrow an average of R553 billion per year. As a result, gross debt rises from R4.8 trillion in 2023-24 to R5.2 trillion in the next financial year. By 2025-26, it will exceed R6 trillion.

ALSO READ: Godongwana says budget cuts won’t go over government’s underspending

“We now expect gross government debt to stabilise at 77% of GDP by 2025-26.”

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Graft still eroding foundation of SA

• Corruption in SA still remains significant and continues to have far-reaching consequences for the political, economic and social landscape, as the country plunges into debt now standing at R5.2 trillion and to exceed the R6 trillion mark by 2025.
• Despite spending almost a trillion rand on social services to rising debt and crippled state-owned enterprises, the Guptas’ state capture which cost SA around R50 billion is one of the reasons why South Africa has plummeted, leading to challenges for spending on social services.
• While the wheel of justice continues to turn at a snail’s pace, some of the key role players arrested included former mineral resources minister Mosebenzi Zwane, who was charged with fraud and corruption related to the R280 million Estina dairy farm project.
• Former Eskom and Transnet executives Brian Molefe and Anoj Singh were released on bail of R50 000 in the Palm Ridge Specialised Commercial Crime Court at the end of August 2022, in relation to a fraud and corruption case involving the state logistics company.
• They appeared alongside former Regiments Capital directors Niven Pillay and Litha Nyhonyha.
• In May, former Transnet chief executive Siyabonga Gama, former chief financial officer Garry Pita, group treasurer Phetolo Ramosebudi, Regiments partner and former Trillian executive Eric Wood and Trillian Asset Management director Daniel Roy were charged.

– ericn@ citizen.co.za