RISE on Mondays – Vol 1

On Wednesday, 22 February 2023 the finance minister, Enoch Godongwana will deliver his Annual Budget Speech. As attractive and common as the practice of trying to say what should be in the Budget is, I will refrain from doing so here. The Budget is prepared over many months and involves hundreds of departmental officials, and numerous discussions by Cabinet. What he presents on Wednesday will not be influenced by what I write in this note.

Instead, I will set out how we should politically engage with the Budget.

Eskom

The first point to make is that we are a country in crisis. Loadshedding has become so frequent and so serious that it is causing serious harm to the economy. For example, in its January Monetary Policy Committee Statement, the South African Reserve Bank revised its annual economic growth prediction down to 0.7% mostly due to loadshedding. When businesses cannot produce at full capacity, the economy suffers.

As you know, unemployment is as high as it was 20 years ago, wiping the gains made in the early to mid-2000s. Youth unemployment is almost 65%, which is a terrible tragedy and one of the reasons South Africa remains unequal.

Eskom is in deep financial trouble. In its court papers filed with the Pretoria High Court last week, it said its debt has increased from R396bn to over R420bn because the rand has weakened, which means Eskom must pay more in rands. Eskom is also expecting a net loss of over R20bn for 2022, which is higher than the +R12bn loss of 2021. It expects to pay over R85bn servicing its debt, which is far higher than that it pays for maintenance. Maintenance costs were just over R19bn in 2021.

This means that although the country relies so heavily on Eskom, Eskom is not able to meet the job the country wants to do because it is financially weak. The appointment of a new Chief Executive Officer soon will not solve this problem because the CEO depends entirely on the government for budget allocation. No matter how excellent that CEO is, they cannot achieve anything without additional funding.

The government has said that it will take over some of Eskom’s debt so we expect the finance minister to say how this will be done, and how much of the debt the government will take over. Because the recent tariff increase is facing widespread opposition in society, the finance minister must say whether the government will give Eskom the additional funds it needs to keep operating, an amount of R325bn for 2023/24.

As Rise Mzansi I believe that we must avoid a habit that is part of South Africa’s political culture, and that is to expect results without stating where the funds for those results are going to come from. This is not to say that Eskom must be granted every application it makes, but we must be honest in our political discourse by acknowledging that providing electricity and solving loadshedding will cost money, and that money will have to either be borrowed by government or extracted from citizens through tax.

Therefore, Eskom and its funding arrangements are the first aspect we must look out for on Wednesday.

National Debt

South Africa’s national debt amounts to just over R4trillion. The Treasury stated in last October’s Medium Term Budget Policy Statement (Mini Budget) that it expects debt service costs to be R332bn during the 2023/24 financial year. That is more than we spend on our biggest single item, basic education. It is also more than we spend on health. In other words, paying interest on what we owe is now the number one spending priority.

This week there will be a big debate about whether the country is investing enough in urgent needs, and to solve hunger. For this, some propose the Basic Income Grant. This demand is fully understandable because in a country where unemployment is so high, and the economy performing so poorly, many people can’t afford to buy food and go to bed hungry. This is unacceptable.

While Rise Mzansi has not established a position on this, in principle we must already consider ways in which people who cannot feed themselves can be supported. Many of the unemployed cannot even afford to look for work as this also costs money. The role of the state is to find short and long-term solutions to such problems.

However, governing also means making very difficult choices. Although South Africa is not a poor country, we are also not able to afford any and everything we want. Therefore, we must look for trade-offs in this budget, but also trade-offs in our own policy thinking as we prepare for a People’s Manifesto. We must avoid making big promises that are impractical, and instead be honest about what must be a priority and what is not due to limited funds.

Other High Priorities

We must also look out for allocations in policing, social services, and health. I am mentioning these three areas together because many communities are besieged by violent crime. Some of this crime is driven by drug abuse, especially by young children. These youngsters are often derisively called “amaphara”, but they are a symptom of a society where young people have no hope of a better life, and often struggle to put food on the table themselves.

One of the ways in which as Rise Mzansi we will set ourselves apart is by looking at problems in a holistic manner. For instance, policing alone does not solve crime. Instead, we need multiple interventions such as well-resourced and run social and health services to complement policing with appropriate prevention and rehabilitation programs.

The police budget is also important because many business sectors are being hijacked by organised criminals in so-called “business forums” that force businesses to either do business with them or to allocated shareholding. This is extortion and destroys the economy. This practice is also common in mafia states. On Wednesday we will see how seriously the government takes this problem.

How to Navigate the Budget

The Budget Speech is a very high-level summary of the actual Budget, and often there are many items that are left out due to time constraints. The Treasury instead publishes two thick documents, the Budget Review and Estimates of National Expenditure. Both are very important.

The Budget Review deals with various budget themes in detail, and often outlines the Treasury’s assumptions and expectations. The Estimates of National Expenditure is an even more detailed document that outlines each government department’s budget plans for a period of 6 years. Three of the previous years and 3 years to come. In that way we get to see what money was spent on in previous years, and what it will be spent on in future.

It is based on these departmental plans that ministers table their budget votes in Parliament between February and April.

Conclusion

A Budget is an expression of the governing party’s political priorities. When this year’s budget is tabled, we will get to see what those priorities are and engage with them critically. I will share my thoughts on the budget next Monday.

Songezo Zibi