Nene’s budget booted

TAXATION10Authors: Andisiwe Makinana, Setumo Stone and Hlengiwe Nhlabathi (News24).

Government is set to take the drastic step of revising ousted finance minister Nhlanhla Nene’s medium-term expenditure plans, as the economic situation has become a lot more dire since he presented it in October.

This unprecedented move was revealed by ministers after an extraordinary ministers’ meeting on the economy this week.

The medium-term budget policy statement, which forms the framework for the finance minister’s annual budget, has never been revised since South Africa adopted a three-year budgeting cycle 15 years ago.

The behind-the-scenes revision by government is also a big departure from the transparent practice of getting inputs from Parliament and extra parliamentary lobby groups such as civil society, unions, business and other interested parties.

It also comes ahead of a series of important meetings in which the economic crisis will take centre stage.

The ANC’s national executive committee will in the next week convene its beginning-of-the-year lekgotla, which will be followed by the Cabinet lekgotla a few days later.

While preparations for upcoming municipal elections will dominate the ANC lekgotla, it is expected the economy will receive greater attention than it has in the past.

Finance Minister Pravin Gordhan, who was appointed in December following David van Rooyen’s four-day stint in the job, said the revision showed that government was “not sitting back” in the face of the domestic and global economic crises.

“We are working … hard behind the scenes to ensure that we begin to take South Africa in a different direction,” said Gordhan.

While he would not go into detail about the revisions taking place behind the scenes, he said the picture would become clearer when President Jacob Zuma delivered his state of the nation address (Sona) on February 11 and Gordhan presented the 2016/17 budget two weeks later.

“If the numbers need to change, then the numbers will change as we go forward, because we recognise that since the [budget statement], circumstances have changed, both globally and within South Africa itself,”he said.

In his already grim budget in October, Nene warned of low growth, limited employment growth, a weak currency raising inflationary pressures, financial market volatility and rising borrowing costs on international markets. He also highlighted electricity-supply constraints, low confidence levels and an out-of-control public sector wage bill.

Since then, South Africa has received downgrades from two ratings agencies, the World Bank has dropped its 2016 growth forecast for the country, both the US and South African central banks have hiked interest rates, statistics have revealed a significant last-quarter dip in mining production and the drought has played havoc with the agricultural sector.

In addition, the value of the rand declined by 6% since the beginning of January as a result of Chinese-led turmoil among emerging market currencies after the rand was battered in December due to panic about Zuma’s unexpected sacking of Nene.

Gordhan said the revision was unavoidable.

“It’s quite clear we need to take account of the new environment in which we find ourselves and make sure we tailor our expenditure and revenue decisions in line with the circumstances,” said Gordhan.

He added: “They … are very complex. The world is in a terrible place as we speak. There are complex dynamics impacting on emerging markets at this point in time, including on our own challenges, as we have admitted them, very frankly.”

Minister in the Presidency Jeff Radebe said this week that resources had to be shifted from some programmes to address burning issues such as the drought and the tertiary education demands of the #FeesMustFall movement.

“All those engagements that happened in government and with other stakeholders have resulted in us shifting the funds in order to accommodate [#FeesMustFall], because education is the future of South Africa; we cannot just sit down and not do something to address the genuine concerns students raised last year,” said Radebe.

Another headache government is facing is that its R5 billion contingency emergency reserve has been gobbled up by last year’s public sector wage hikes, thus making it impossible to declare the drought a national disaster.

Agriculture Minister Senzeni Zokwana said government had diverted R300 million towards drought relief and added that the country’s reserves would be hit further by the need to spend R20 billion on maize imports.

Gordhan said the country’s economic crisis, which could “create immense difficulties for all at the end of the day” could last for some time.

“I think we need to explain to South Africans that the world finds itself in an extraordinarily difficult environment,” he said.

Downplaying talk of a looming recession, Gordhan said a major problem was that “we are not solving the problems of inequality and unemployment and poverty in our country adequately”.

Department of trade and industry director-general Lionel October said the most urgent priority was to “give confidence to the markets that we are managing the fiscal and monetary policy very well”.

This message would be conveyed through the content of the Sona and the budget, he said. He cautioned that there would be no quick fixes to the current crisis.

“We must think long term. If you are looking for quick solutions, then get into politics, not economics. You have to sow if you want to reap.”

He warned against the tendency to panic.

“Every time the rand goes up or down, or the gold price goes this or that way, we get into a state of panic. We must develop a long-term perspective, and that is what the [National Development Plan] was all about.”

South Africans also did not have a common understanding of the economic problems.

“The problem is we have a lot of debates about solutions and the blame game is strong. Some claim business is unpatriotic, government is corrupt and the unions are stoking labour unrest. We must have a common analysis of our core problem,” he said.

He said South Africa’s low growth was linked to inequality, as low wages constrained consumer demand.

“Because of inequality, we are not growing. We must agree our real problem is dependence on mineral commodities and low wages.

“Every country that has developed has got out of that trap. We are stuck in that trap. People are misdiagnosing the problem by blaming mine workers for demanding higher wages.”

Cosatu president Sdumo Dlamini told City Press the labour federation would go to the ANC lekgotla with the message that the governing party’s allies should be respected when formulating solutions.

Speaking shortly after Zuma ignored Cosatu’s protests about a new tax law, Dlamini said “we must as alliance partners approach meetings in an honest way, and ensure that in that engagement we respect each other”.

He slammed those who blamed South Africa’s economic woes on high wage demands and warned that solutions “should not be at the expense of already oppressed workers who are on the lower end of the economy”.

“It is not fair to ask workers how they feel about the economy, which is in a crisis. Workers have been in an economic crisis for as long as I can remember. Wages are too low. We are sitting on 25% unemployment; we are faced with huge inequality and inability to find jobs … Now we have a global economic situation, which people want to blame on workers,” he said.

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