Home Opinion and Features Godongwana’s ‘shadow boxing’ masks deep financial crisis

Godongwana’s ‘shadow boxing’ masks deep financial crisis

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OPINION: Minister of Finance Enoch Godongwana is proud of his trade union background, but one thing he has not told us before is that, coming from the Eastern Cape boxing environment, he is also a master of shadow boxing, judging by the manner in which he delivered his 2024 Budget speech, writes Professor Bonke Dumisa.

Minister of Finance Enoch Godongwana tabled his Budget this week. Picture: Ayanda Ndamane, Independent Newspapers

By Professor Bonke Dumisa

MINISTER of Finance Enoch Godongwana is proud of his trade union background, but one thing he has not told us before is that, coming from the Eastern Cape boxing environment, he is also a master of shadow boxing, judging by the manner in which he delivered his 2024 Budget speech.

This was a speech that was highly anticipated, given that it was going to be presented during this 2024 national and provincial elections when a combination of more than 350 political parties and/or independent political wannabes are promising lots of freebies, as if money grew on trees.

The major challenges facing the finance minister with the Budget were the economic woes facing the country owing to the problems caused by Eskom’s load shedding, Transnet’s logistics challenges, many other state-owned-enterprises requiring bailouts, corruption, high unemployment rates, lawlessness in the country and many other things that are negatively affecting our economic growth rates.

The country has had continuous budget deficits over the many past financial years; and this has resulted in the government raising many loans. The government debt is above R5 trillion and will be above R6 trillion by 2026. The major question was thus: How will Godongwana address the issue of unsustainable high expenditure levels, lower revenue levels than budgeted for and reducing the government debt levels?

To complicate things further, Parliament has passed the National Health Insurance (NHI,) mainly passed for pure ideological reasons despite the fact that there has not been clear information on how this NHI will be funded. It was clear that the ANC wanted the NHI signed by President Cyril Ramaphosa now so that the voting public can be excited that the ANC ruling party has provided this greater access to health care for all. This is, however, not affordable.

It is against this background there were big debates on how the government would fund all the challenges. Some were saying we must significantly cut our expenditures; most workers called the “austerity measures” and were actively campaigning against this route; hence we saw the “unemployed doctors” marching against the government in KwaZulu-Natal.

Others were saying that VAT must be raised; the problem with this option is that VAT is regressive, hence significantly negatively affects the poor more than the high-income people or the rich.

Others were saying that income taxes, corporate taxes and other taxes must be raised. The problem with raising income taxes is that we have a diminishing pool of taxpayers who pay taxes. There are fewer than eight million individuals who pay personal income taxes. Compare this to more than 28 million people on various social grants.

Some financially informed people suggested that the government must raid the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), which is valued at about R500 billion. I was opposed to this option on the grounds that “you must not resort to contingency reserves for operational expenditures”.

Knowing how damaging some of the above suggestions may be to its electioneering, it is clear that the ANC opted to avoid tackling the budgetary items which were going to be viewed very negatively by the wider South African electorate. Godongwana was cagey on where the government would get the money to fund the unsustainable expenditures.

Of the options discussed above, only the GFECRA route was partly followed. The National Treasury would use R150 billion from GFECRA to offset some the high government debt challenges.

Apart from the R1.4bn that was allocated to the NHI, not much was said about the NHI.

The R765bn was allocated to the Peace and Security Cluster, which will also help in the recruitment of at least 10,000 new police members. The major reason for this will be to fight the high levels of lawlessness. It was mentioned that in fighting illegal mining, the government might even use billions of rand from the Special Account used for depositing the money received from the Forfeited Assets of people accused of having profited from the proceeds of crime.

The R57.6bn more added for the salaries of teachers, nurses and doctors, among many other critical services, may, at face value, look impressive that the government is prioritising critical scarce skills, but digging further, it becomes clear that the money can be linked to the unsustainable salary increases of more than 7.5% that the government gave to the public servants last year. It was clear that the government could not afford to alienate the voting pool so close to the 2024 national and provincial elections.

The R61.4bn allocated to employment programmes includes R7.4bn for the Presidential Employment Initiative. This is okay for those who will benefit from these employment initiatives.

But this will hardly dent the high unemployment rate in South Africa; for us to significantly reduce the rate, we must overhaul our education system in order for it to produce people who are fit for purpose for our economic needs.

It was disappointing that Godongwana did not say much about why he specifically mentioned that a private partner has been secured to upgrade Pier 2 of the Durban Container Terminal. All he added was that this should increase private investment in equipment, enhance technological capability and improve operational efficiency. What he also needed to say was that they needed outsiders to come and show that the lower efficiencies at our ports, being run by Transnet, could easily be linked to the general culture of entitlement in our country where the issue of productivity was hardly part of the agenda in the workers’ minds.

It was noticeable that Godongwana warmed up and spoke enthusiastically when he announced that the old-age social grants would be increased by R100, the disability grants would be increased by R90 and other social welfare grants would also be appropriately increased, though he was non-committal on the issue of the R350 Social Relief of Distress grant.

Godongwana was equally jubilant when announcing sin taxes, the excise duties:

– A can of beer increases by 14 cents.

– A can of cider and alcoholic fruit beverage goes up by 14 cents.

– A bottle of wine will go up by 28 cents.

– A bottle of fortified wine will cost an extra 47 cents.

– A bottle of sparkling wine will cost an extra 89 cents.

– A bottle of spirits, including whisky gin, or vodka, increases by a whopping R5.53.

Also proposed were increases of tobacco excise duties by 4.7% for cigarettes and by 8.2% for pipe tobacco and cigars.

– A R9.51 increase for cigars.

– A 97 cents increase for a pack of cigarettes.

– An extra 57 cents for pipe tobacco.

What all ministers of finance do not mention when they set the excise duties at the Budget speech presentation is to say excise duties are paid by the manufactures, producers or distributors of such tobacco or alcoholic beverages upfront before the products are sold to the public.

Governments use such excise duties as a source of additional revenues and, more importantly, in their efforts in combating the negative effects of such products in the society at large.

* Professor Bonke Dumisa is an independent economic analyst.

** The views expressed do not necessarily reflect the views of the DFA.

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