MUST READ! Mampara’s guide to running SA economy into the ground – Marius Oosthuizen

Pieter-Dirk Uys, who puts on a delightful dinner-and-a-show at his pink Darling station-turned-theatre, has an unlikely competitor for his special brand of political satire: business school academic Marius Oosthuizen. In this piece, Oosthuizen unpicks the economic problems weighing heavily on South Africa and explains by way of humour how the ANC are mucking things up. He cuts through the tangled web of ideas around how to fix Eskom to shed light on what should really be happening at the power utility. Ditto SAA. And Oosthuizen highlights the hypocrisy of a government that is clamping down on the illicit cigarette industry while seeking to promote dagga, which grows in many a back garden across the country. He cautions, too, against squeezing ordinary taxpayers even more rather than working on what will really boost the fiscus – economic growth. Move over Evita Bezuidenhout. Marius Oosthuizen is about to eat your lunch. – Jackie Cameron

The pre-budget speech – if Mboweni was honest

By Marius Oosthuizen*

Madam Speaker, Mr President and dishonourable members, and in the absence of an uninvited FW De Klerk, all protocol observed.

Marius Oosthuizen, GIBS profile picture
Marius Oosthuizen

When I stood before Judge Mantame and took an Oath of Office. I said: “I will be faithful to the Republic of South Africa“. But I had my fingers crossed inside my pocket, because you know, loyalty to the party comes first and our left hand does not know what the right hand is doing.

Today, I submit before this august House the National Budget. It reflects, to the best of my judgment, the twitterati’s opinion of the nation’s financial situation. While we should safeguard the sound financial status of the Republic, we must carefully balance the interests of the rich communists and ANC-aligned labour, even if it costs us another year teetering on the fiscal cliff.

Madam Speaker,

In the 2019 State of the Nation Address, our President set out an ambitious agenda for our nation, but it was more of a wish-list than an action plan. Smoke and mirrors, but mostly smoke, from the defunct chimneys of Medupi and Kusile.

Note to self: Insert poems and scriptures and some quotes from Kagame.

Madam Speaker, our President is committed to a track of renewal, but the party is not sure what renewal looks like. Let me explain using six fundamental questions:

    1. Does South African need a higher rate of economic growth, or a new constitution?
    2. Can we increase our tax collection, or should we take land instead?
    3. Should we control expenditure, or nationalise the South African Reserve Bank and just print more money?
    4. Should we stabilise and reduce the debt, or just shuffle the pension funds over to our overdraft?
    5. Must we reconfigure state-owned enterprises to be efficient, or reconfigure the Washington Consensus to convince capital markets that statist communism is a better system?
    6. Must we manage the public sector wage bill, or divert attention to the greedy capitalists?

It will not be easy to choose. Many of my comrades believe in either one option or the other, mostly depending on if they went to school or whether they have travelled and seen the world. The chance of convincing them will require pulling an actual ace out of our party’s sleeve.

Developments since the October Medium Term Budget Policy Statement

During the last Medium Term Budget Policy Statement, I outlined our main budget fiscal outlook. At that time, I projected that tax revenue would continue to decline and that spending would be continue to rise. That would leave us with a budget deficit of over 4.5% of GDP.

The scaremongers wanted us to put the knife in to stop the bleeding, but as you know, we have opted for the more gentle approach of debating competing ideologies. The taxpaying middle classes are cash-strapped but we think we can push them a little further before they all emigrate, so no rush.

I said that we were at a crossroads, and that we could go either to heaven, or the other way. Now I see that we had a third option – never -never land, where we know what the medicine is but refuse to drink it.

Then, we expected economic growth of 0.7%. But, many of the risks that we warned about have materialised. Especially Stage 6 loadshedding and ANC NEC brain-shedding. We now expect a slower but still steady rate after the technical recession. It is expected that real GDP growth in 2020 will not rise to 1.5% as hoped, nor strengthen moderately to 2.1% in 2021 as we dreamed, but rather it will stay low for long – a bit like the outcomes of our education system.

South Africa is a small open economy and we are impacted by events in the global economy. But we prefer to behave as if we are a large closed economy that controls global events. Which is why my comrades look to China as a model for us. Once we have built the Estina Dairy Farm – next, world domination!

World growth is now expected to slow, which should constrain South Africa’s export growth forecast. But fear not, we are legalising cannabis. So while we will be poorer, we will be blissfully unaware.

Madam Speaker, walk with me on a journey through the economic Magoebaskloof of how we have chosen to respond to these challenges.

Tax revenue and raising SARS capacity

In this current year, tax revenue has been revised down compared to our October estimate. This lowers revenue collection for the year.

Recommendations:

  1. We will tax South Africans who earn money abroad, even if they pay tax in those countries. God forbid they actually immigrate entirely, but in the short term we have something new to do at SARS.
  2. The new Illicit Economy Unit is on track to fight the trade in illicit cigarettes and tobacco, but not cannabis because we have them plants in our back yards.
  3. Judge Davis will assess the tax gap, which is the difference between revenue collected and what ought to be collected. We already know it is due to slow growth, but we’ll pretend its tax evasion which is politically more attractive for cadres to say.
  4. We will also review the proliferation of duty free shops inside South Africa, which is a non-xenophobic way of saying the Somalis, Ethiopian and Pakistani traders are going to be shaken down for some cash.

Fiscal prudence requires some tax changes. We propose additional revenue measures of R15bn in 2020/21. Call it a drop in the bucket to allow us to pretend the R500bn debt hole isn’t the real problem.

Madam Speaker, excise duties on alcohol and tobacco will be increased. You will shortly be able to buy a beer, a bottle of wine and a packet of cigarettes for one kidney. For two kidneys you will be able to buy fuel. But you won’t be able to buy both.

The Road Accident Fund will be reallocated to Luthuli House as a slush fund, because we all know the carnage that will occur if we don’t oil the wheels of the party.

The National Treasury will work with the Department of Trade and Industry and the Department of Economic Development to explore the introduction of an export tax on scrap metal. Ideally this will be in place before land expropriation without compensation, as was the case in Zimbabwe, we expect to see a thriving scrap metal industry rise from the ashes of EWC.

The ordinary taxpayer is fully tax compliant and pays their fair share. Only, in 2020/2021 they will have to pay someone else’s fair share as well. Thuma Mina. Paying your taxes is the right thing to do, paying someone else’s is even better.

Expenditure

Let me turn to our spending projections. Since October, government has taken steps to adjust baseline expenditure downwards, but don’t fear, we will not really stop the party. Half of the reductions were to come from adjustments to government’s spending on compensation. In reality we will redeploy cadres to cost centres that are less transparent and more difficult to track, such as International Relations and the Security cluster.

Provisional allocations are made for the financial support to Eskom and the Infrastructure Fund. The former will be paid in Monopoly Money and the latter in private sector money, if we can convince the banks that we are investable.

Last year, I quoted Tale of Two Cities by Charles Dickens. After a few months in the role, I felt that Oliver Twist might be more appropriate. In short, ‘Please Sir, may I have some more.’

Now I feel the Rolling Stones say it best,

“You can’t always get what you want, but if [sic] you are the ruling party, just pretend you can.”

The SOEs pose very serious risks to the fiscal framework. Funding requests from SAA, SABC, Denel, Eskom and other financially challenged state-owned enterprises have increased, with several requesting state support just to continue operating.

The sensible question the country could ask at this time is: do we still need these enterprises? Instead, let’s ask, can we still tell SAA what to do even if it is in business rescue? Also, if nobody flew in an SAA plane to London, is it still a national carrier, or just a very expensive joy ride for the pilots and the crew?

State-owned enterprise restructuring

Madam Speaker, I said in October that we would have no holy cows when it comes to our approach to state owned enterprises. As it turns out, holy cow! I did not realise how passionate Irvin Jim and Zwelinzima Vavi are about aviation.

Eskom

In the State of the Nation Address, the President announced a clear and executable plan for electricity. We now have a new plan. Plan number nine to be exact. At the core of this plan is the subdivision of Eskom into three independent components. This will set the electricity market on a new trajectory, and allow for more competition, transparency and a focused funding model.

There will be some feet-dragging by the Minister of Energy though, as my comrades figure out how they can set up the back-room deals to ensure the new opportunities in energy are captured by politically connected elites.

Pouring money directly into Eskom in its current form is like pouring water into a sieve. So we prefer pouring it directly into third party bank accounts.

Read also: Shocking data shows just how much damage Eskom is causing the SA economy

I made it clear: the national government will take on Eskom’s debt. Well, not in a way that says “we will bail you out”. Bail-outs must be done by the people. It is their democracy we are mismanaging. Eskom took on the debt. The pensions must take it over. If someone must ultimately repay it, let it be our grandchildren.

Instead we are setting aside another R30bn a year to financially support Eskom during its reconfiguration – which is code for “allowing us to tell the cadres we deployed to Eskom to go away without taking us to the CCMA.”

Minister Gordhan and the strong team he has built at the Department of Public Enterprises will continue to exercise close and ongoing monitoring of Eskom. Don’t be fooled though, Minister Gordhan must also fulfil his obligations as a decoy for attacks by President Ramaphosa’s enemies. There are no heroes in liberation politics, unless we say so.

Other state-owned enterprises

Financial support will be budget neutral as far as possible, until it isn’t.

During this past financial year, total guarantee utilisation increased by another R50 billion or so, but who is counting. After the ninth zero it’s just more zeros, right?

  1. Eskom used more of its guarantee.
  2. Denel was granted another guarantee.
  3. SAA guaranteed debt increased.

We must tighten the guarantee rules. But we will do this later, maybe in 2035. If a state-owned enterprise applies for a government guarantee for operational purposes, it will be required to appoint a CRO in concurrence with the National Treasury and its bondholders. The CRO will undertake a full operational and financial review. When banks need state support, we appoint a curator.

These fancy new positions will report directly to Luthuli house. Of course the decisions we make will still remain the same, but one can never be too cautious about keeping up appearances of good governance.

Cabinet is considering a proposal to end the issuing of guarantees for operational purposes. Once it has a recommendation, it will stick a wet finger in the air and feel the political mood, before making a decision.

The consolidated fiscal framework

To summarise: in this coming year, we expect less revenues  and more spending. That means we will spend billions more than we earn. Think of it as a Christmas shopping trip using our grandchildren’s credit card. Ho! Ho! Ho!.

Put another way, we are borrowing more than R1.5bn a day, assuming that we don’t borrow money on the weekend.

We are masters of our own destiny. We can go financially broke in the future, if we so choose.

Conclusion

In summary, Madam Speaker, let me outline the highlights of this Budget:

  1. We are taking tough steps to fix the fiscal position and state-owned enterprises. Baby steps. Sometimes backwards. More like learning to walk. Walk the plank.
  2. Our children are our future. Most of our spending goes to education, and we will strengthen early childhood development and support higher education for the most deserving. They are our future, and we hold their future in our hands. But right now, the future of coal jobs is a more important future.
  3. On land, we have set aside money to help our people buy their own houses, support land reform, and transfer title deeds. Some say “land or death!”, we say “chicken or beef, or both?”.
  4. On electricity, we face tough choices on Eskom. Lights or candles?
  5. We are reprioritising resources towards the President’s infrastructure fund and away from the wage bill – on paper. In reality we are going to try to do both.

Madam Speaker, this is a Budget that plants a seed for renewal and growth. A mental seed, not a fiscal one.

It is all of our duty to tend the seed and see that it grows strong, tall and fruitful.

See you at dinner time on twitter, where I will host “Master-chef – bring and braai”. Bring your taxes so we can braai! After all is said and done, we will let the people eat cake.

  • Marius Oosthuizen is Programme Coordinator at The University of Pretoria’s Gordon Institute of Business Science.
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