Nene could have the last laugh
Finance minister’s medium-term budget is ambitious, yet safe
E had a humbling experience with a chair in 2008, when it collapsed during a television interview, sending him to the floor and the leaked clip through the roof in internet hits around the world.
It’s probably his solid academic background, but perhaps this incident, too, that taught Finance Minister Nhlanhla Nene something about the value of taking out insurance against the unforeseen.
Questions over the likely tenor of his stewardship of the country’s economy have been comprehensively answered.
For the moment, anyway, Nene will be playing it safe.
That is the upshot of the medium-term budget policy statement he delivered on Wednesday.
He cautioned against applying the term “austerity” to the package of spending curbs and signalled increases in taxation contained in his speech by pointing out that, unlike the measures undertaken in the struggling Eurozone countries over the past few years, government spending here would continue to rise (by an average 1.3 percent in the medium term), just by less than indicated previously.
But he was emphatic that the time for talking about cost containment without seriously applying it was over.
“Members of the House, we have reached that turning point. Fiscal consolidation can no longer be postponed,” Nene said.
His targets were ambitious: R25 billion shaved off spending plans for the next two years; R1.3bn saved by cutting government expenditure (like catering, consultants and travel) and about R15bn a year in extra revenue from taxes.
HAll of this without affecting social protection and infrastructure build plans. In many ways this path was chosen for him by circumstances. They may be reviled for their apparent power to hold government fiscal policymaking to ransom, imposing a more conservative path than the governing ANC’s alliance partners, in particular, would choose, however, the rating agencies have an undeniable influence on borrowing costs for all players in the economy.
As Nene noted, failure to keep debt levels under control – by borrowing to cover the revenue shortfall resulting from poor growth – would have led to yet another credit rating downgrade, increasing the costs of raising capital for the investment required to spur future growth.
Taking the pain now would set the platform for another assault, in two years’ time, on investment backlogs that are holding the economy back.
It is also likely that the reduced influence of a weakened Cosatu – driven by internal divisions – gave Nene greater licence to act.
Not only did he draw a line in the sand for the forthcoming battle over public-sector wage increases – pencilling in 6.6 percent – but he warned that anything above a costof-living adjustment would come at the price of either services or jobs.
Unfilled vacant posts would be frozen and possibly permanently withdrawn, Nene said, adding that new positions would have to come from natural attrition of current staff.
Either the public service accepts a modest wage increase, or it can expect to be shrunk, in other words.
There were other indicators that the union movement has reduced sway in government thinking.
The private sector would be invited – no, encouraged – to play a greater role in infrastructure provision and chunks of state-owned entities might be carved up for the market.
Nene’s deputy, Mcebisi Jonas, said the issue of privatisation was “an old debate”.
“The issue, ultimately, is going to boil down to one question: how do we improve the efficiency of service delivery?”
Nene also paid scant attention to another Cosatu-inspired project, the proposed National Health Insurance, which now depends on improved performance in the public health service before it will receive further funding.
Nene has mapped the course for the next three years but, much like a sports coach, he now depends on his team to execute his plays.
Two of his cabinet colleagues are key to the plan – Public Service and Administration Minister Collins Chabane and Public Enterprises Minister Lynne Brown.
They are the leading players in two out of three risks to the fiscal outlook as identified by the Treasury: economic performance, the public-sector wage bill and the balance sheets of state-owned companies.
It falls on the soft-spoken Chabane’s shoulders to thrash out a wage settlement the government can live with, with the National Education, Health and Allied Workers Union already beating the war drums in the wake of Nene’s speech.
Brown has a more complicated task – that of whipping some of the perennially delinquent state-owned entities into line.
SAA, SA Express, the SA Post Office and Land Bank are already on the operating table, with Nene having announced the emergency treatment Eskom will receive.
But these entities have been the subjects of numerous “turnaround” experiments in the past, often involving an injection of billions from the fiscus, only to return to the emergency room a few years later.
Boards come and go, holes reappear in the balance sheet and no one is left to take responsibility.
Usually, the Treasury has been in no position to say “no” to pleas for more money, but Nene said this was about to change.
For one thing, the government was in the process of stripping out the commercial aspects of its involvement in these entities from its developmental objectives – and would fund them accordingly in future.
Areas with a commercial function would be expected to perform as such, while the government would have to accept responsibility for the rest – as long as they fulfilled their developmental mandate.
Also, those needing support in future would get it only after putting “a credible business plan” on the table.
It was in “these tough times when tough decisions can be made”, Nene said.
Brown will have her work cut out in keeping tabs on the government’s substantial portfolio of interests and will have to start by appointing people she can trust whenever the opportunity arises.
But, like any good coach, Nene has kept a few aces up his sleeve as insurance against some of his players letting him down.
Whereas finance ministers have in the past been overwhelmed by political imperatives when faced with state-owned enterprises in crisis, having little choice but to cough up the funds from the fiscus, Nene has built an ingenious tie-breaking mechanism into his plan: all future bail-outs will be funded by the sale of non-strategic state assets, not from tax revenue or borrowing.
That means if his cabinet colleagues insist on saving one of their errant “children”, from now on they will face the painful decision of choosing which of the others to sacrifice.
They will be much less likely to tolerate negligent governance as a result.
Secondly, while he has trimmed spending plans by R25bn over two years, Nene has left a tantalising R45bn unallocated in the third, suggesting it would be available to cover “fiscal and economic shocks”.
One such “shock” could be the wage settlement in the public sector – suggesting Nene has this eventuality covered.
But it’s also a big, fat carrot dangling in front of government departments.
There would be a “comprehensive assessment” of spending proposals for the outer year, “emphasising value for money and alignment with longer-term policy priorities”, according to the Treasury.
Nene said some of the R45bn could be pumped into “high-impact” programmes.
The message to the departments is clear: deliver what you’re supposed to deliver, do it efficiently, cut the waste and you stand a chance of earning a bigger slice of the pie.
Nene may have been the butt of a few jokes after the chair fiasco, but the finance minister could yet have the last laugh.
– Barry Steenkamp after Pistorius was jailed for five years for killing his daughter Reeva.
– Pistorius’s uncle, Arnold.
– NPA spokesman Nathi Mncube commenting on the Pistorius sentence.
– Kgosi Mampuru II prison area commissioner Zebulon Monama after the disgraced Paralympian was admitted to the prison.
– An unnamed prison source, quoted in The Times, on Pistorius’s first night in jail. – ANC spokesman Zizi Kodwa after MP Jackson Mthembu was shot during a robbery in Witbank.