Butcher of Finance, Nhlanhla Nene, has not strayed much from the more austere fiscal path adopted last year and his mini budget tabled in parliament last week did not contain any big surprises. With the economy having slowed down to an embarrassing snail-pace, Nene seems finally aware of the limited resources at his disposal. At face value – and talk is still cheap – he seems to be honest about the restraints and negative realities, but reluctant to raise taxes. He is prepared to use austerity measures, reallocations, the sale of state assets and contingency reserves to prevent the budget deficit and borrowing from creeping up.
h3. Private Business Confidence
He also recognised the need to get a confident private sector behind efforts to grow the economy. Nene said at a press conference before his speech that there is no way “this economy can grow if the private sector is not on board”. Let’s hope that government as a whole shares his thinking and approach as xenophobic and commerciophobic legislation clearly speak a different language, hindering sector devlopment and working to the detriment of any sector growth.
h3. Embezzlement of Contingency Funds
The theme of the mini budget was “Sustaining progress in a low-growth world”, which was the first show of blatant ignorance as South Africa is surely not “the world” and neighbouring and East-African countries sing currently rather the song of “just-short of double-digit growth”!.
A proposed long-term fiscal guideline will align spending and gross domestic product growth. Nene stressed the importance of good fiscal planning and sustainable allocation of public funds, much like in previous budgets, but contradicted himself by non-chalantly communicating the shocking news that the complete contingency reserve (meant for disasters and other unforeseen acts of God – and foolish men) will be used for salary increases for an already bloated, inefficient and corrupt civil service. That is probably why the summary of the mini budget states: “The resources available to the fiscus are expanding too slowly.” and that in consequence dips into emergency pockets to line government’s deep salary pockets.
Nene himself appeared annoyed at a press conference about the strain put on government finances by the rising wage increases negotiated with government unions. Salary hikes will effectively amount to more than 10%, which will mean a shortfall of ZAR 12.5bn in the current financial year. The annoyance clearly related to his double-digit million rand bonus about to be flying out of the window or his and his colleagues’ entertainment allowances not being increased enough to party even harder while the country is picking up economic growth crumbs.
Nene said last year that big salary hikes for civil servants as well as the expansion of the government workforce is unaffordable, God bless Alzheimer, he had forgotten all about it only one year later!
h3. Budget in Focus
The “lowlights” of the mini budget are however:
# *Tax:* “South Africans will probably pay more taxes from next year (detailed in next February’s budget). The mini budget states that additional taxes will be needed to fund government’s ambitious policy agenda, but will be approached with caution given weak economic conditions”. Why don’t we start cutting budgets for the Ministry first? Cut where there is fat, not where is the battle for survival!
# *VAT:* “No decision has been made on raising VAT, but it remains an option as part of a progressive fiscal system. Projected gross tax revenue is down by ZAR 7.6bn this year and ZAR 35bn between 2015/16 and 2017/18, compared to the 2015 budget.” Finally, the holy cop is being led to the slaughterhouse….
# *Economic Growth:* Nene: “This has slowed (surprise!!!). Growth of 1.5% (2.0% in the February budget) is expected for 2015 (the same as 2014) and will rise marginally to 1.7% in 2016. Consumer and business confidence is muted, and employment growth remains weak”. But even these pathetic figures are far from reality. In fact the economy is on a further braking course at currently 1.2% growth and the busniess confidence is on its lowest in decades, owed to the toxic legislation environment hand-crafted by a xenophobic government junta that thrives on nepotism and embezzlement rather than on fiscal prudence and hard work. But if the President cannot count – which now counts totally in his defence for his spendings on Nkandla – why should the Minister of Finance?
# *Inflation:* “is currently under control, but there are upside risks from the exchange rate. The mini budget states that without speeding up the pace of growth, SA will not be able to substantially reduce unemployment, poverty and inequality”. Lip-Service! Blatant Lip-Service! The inflation is under control by accident as explained so many times at this place. Nobody would have foreseen the commodity price decay, so please do not make it seem a success.
# *Risks to the Fiscal Framework:* Two risks have been identified by the Seer of of Seers – slower economic growth means lower revenue and some slippage on budget deficit; and a public wage settlement at 10% higher than inflation means more pressure on public finances. Wow! And why is that risk so high? Maybe we ask the unholy trinity of ANC, Unions and Communist Cell in Government? It is because it is wanted by them, union-fat-cats.com meet government.clowns.co.za and have paydas everyday under the brittle smoke-screen of labour improvement and corporate governance. That was not what King hat in mind!
# *Proposed medium-term Budget Allocations:* “These amount to ZAR 542bn over the next three years. In addition, infrastructure plans by large state-owned companies exceed ZAR 400bn over the next three years. Government spending includes:
– ZAR 130bn on roads and public transport;
– ZAR 60bn on public housing;
– ZR 55bn on water infrastructure;
– ZR 50bn on other municipal infrastructure;
– ZAR 43bn on school buildings;
– ZAR 30bn on health facilities and equipment;
– ZAR 11bn on tertiary education capital projects; and
– ZAR 20bn to extend the electricity grid to poor households.”
# *National Debt:* “Continued restraint in expenditure growth shall result in net debt stabilising at 45.7% of GDP in 2019/20 (in 2008/09 it was about 26% of GDP). Debt-service costs remain the fastest-growing spending category – from ZAR 129bn in 2015/16 to ZAR 174.6bn in 2018/19 (10.9% of the total budget)”. Classic for a failed fiscal policy, if we cannot improve revenue through business we just go and borrow. A pity the government does not have to comply with loan conditions of any ordinary man applying for a house-bond. Government would fail all tests, from sustainable income via serviceability to prudent fiscal management of accounts.
h3. Contingency Reserve shock
One of the big shocks of Nene’s mini budget was – as indicated by us above already – the complete draw-down of the contingency reserve of ZAR 5bn in this year’s budget to help finance the shortfall of ZAR 12.5bn. This resulted from the agreement with unions to give civil servants an effective average salary increase of just more than 10%. This is the worst case of fiscal collusion the country has ever seen and would lead to serious legal consequences in any private sector. How dare these nepotistic clowns to re-allocate emergency contingency funds to increase salaries far above inflation level? Normally these contingency funds are used for really unexpected emergency shortfalls or costs related to disasters – and we had quite a few of those in recent months and years!. To use it to compensate already well-paid civil servants does not only seem to be right decision, given tough economic times and unemployment in the country it is a punch in the face of the hard-working and tax-paying society, who has to watch in disbelief how law and order went out of the government window just to be replaced by a fiscal anarchy that defies any policy and any framework ever issued in and around the treasury.
Moody’s and Standard and Poor will be watching in disbelief and once government annuities will be rated as junk bonds for the financially insane investor, maybe someone wakes up and does not vote for those impostors disguised as politicians anymore!
Disturbing, Mr. Nene, disturbing!