by: Prof. Nhlanhla Mbatha – Institute of Social and Economic Research, Rhodes University
Development is driven mainly by two variables: first, the relative strength or weakness of state and government involvement in the management of public affairs and resources, and second, the possibilities for ensuring political accountability. What is important for human and economic development within any country are the capabilities and levels of involvement of the state and government in sound and rational planning and execution of strategies. No less essential, is the extent to which citizens can hold politicians and state officials accountable for the soundness and implementation of official developmental plans. And at budget time, that accountability is critical.
Revenue collection shortfall worsens debt
The Minister of Finance, Tito Mboweni, tabled the 2021 budget in February. South Africa has experienced an historic revenue collection shortfall, at R212 billion, meaning we have budgeted for the money that will not be available. It shows that we really don’t understand the true impacts of Covid-19 on the economy yet. It may also signal that a significant number of taxpayers have taken opportunities to avoid or evade paying their tax obligations – something that is deeply affected by trust in government. This is the first area that must be investigated.
The projected consolidated spending is about 2 Trillion, against only R1.21 trillion expected from tax collection revenue. In most years, the gap is covered by borrowing. But this time around, it seems the gap is really too big, meaning debt is our biggest problem with the fiscus. Debt is expected to stabilize at 88.9 % of GDP, making our debt R 5.2 trillion. If this is not arrested, we will soon owe more than we are worth as a country. The problem with debt is not the extent of it, but rather, the cost of servicing interest. At some point, when this becomes unaffordable, countries can default on their debts and truly descend into junk status. We need to identify when are we going to go over this cliff right away, and monitor ourselves carefully on our way back from the cliff.
Understanding our spend
There is no question that we have to spend on infrastructure, with a leap to R791.2 billion. This allocated spend must not go to waste through corruption and inefficiently managed projects. Corruption remains our biggest enemy in South Africa and across the continent, and must result in jail time. I believe it is the single most critical factor that has kept the African continent in the dark. It is refreshing to hear about realignment of procurement procedures.
Inefficiently managed infrastructure projects, with stilted or negative returns, must be avoided. What the projects are, and who they are awarded to, should remain a matter of keen public interest as it is of crucial importance to society.
When it comes to spending on State Owned Enterprises (SOEs) such as SAA, it appears we are having to choose between national pride and national bankruptcy. We have to decide which of these two we can afford in the long run.
Spending on public employment programmes is essential during the pandemic, but any abuse of funds must be stopped. It is the duty of every citizen to blow the whistle as needed. In village communities, one cannot steal cattle from the commonage and expect the neighbours to keep quiet. Why are we doing this now? We need to be prepared to go to war for stolen public resources.
The R11 billion allocated for Youth Employment must include training of the youth in easily accessible (easy to acquire) technical skills. For example, trades and artisan courses linked to jobs and self-employment programmes will really reap returns on investment. Without such youth training on artisanal skills, including in the construction industry, how else are we going to build and rebuild our infrastructure for which we have budgeted so much? Youth unemployment is also a political landmine for any country. It is dangerous for democracies.
Where is the money going to come from?
As income taxes have remained relatively stable, for now, it seems government is counting on sin taxes. South Africans are addicted to alcohol and cigarettes, with 20% of the population, 8 million people, smoking. You can always count on these, because of the inelastic demand for these products. We have to estimate correctly this time – how much this will be and whether it will cover our projected shortfalls.
Targeting vices also has more than one outcome, economic revenue collection and of course possible social relief of the poor from addiction – but only if the tax works in reducing consumption. Temporary increases in pricing (illicit products) during lockdown did not seem to have a major effect. The social problem of high prices for alcohol and other vices comes when people choose to spend most of their limited money on alcohol and don’t buy essentials like food. Addicts tend to do that. These patterns in consumption need to be monitored, as unintended results of some taxes, and the careful balance found.
In terms of risk, our vaccination budget allocation of R10.3 billion is an investment with immediate returns for the economy and society. We must continue to drive accountability around timing and transparency. There is still little clarity on the specific costs for procurement of vaccines, distribution or delivery as well as costs for administering of injections. The lack of clarity may indicate poor planning – which would then lead to poor budgeting. The promised 12 million doses from April to June from the Covax programme seems enough to cover the required population for community herd immunity – but timing is critical in terms of preventing mutations and vaccinating enough people in time for winter to avoid a third wave, and its devastating economic effects.