Budget 2022: “Relax SA” – amazing how an R182bn windfall can lift the mood.

By Alec Hogg

This morning, as we left the Imbizo Centre where pre-Budget lockup pressers are hosted, SA’s finance minister Enoch Godongwana took my arm: “I’m relaxed,” he said, “this ship is turning around.”

He was repeating the message which overrides everything else in the country’s annual national bookkeeping exercise for 2022.

Like his boss Cyril Ramaphosa, by his own admission the recently appointed minister of finance was worried when he presented the mini-Budget in November.

Now he’s doing his best to instill hope. On the logic that without hope there can be no confidence. Sans confidence, investment doesn’t just happen. And without investment, even modest economic growth projections in the 2022 Budget would be a stretch.

SA has been battened down for so long that it’s easy for pundits to conclude Ramaphosa and the man who is effectively his FD, Gondongwana, are fighting a lost cause – peddling a critical intangible like a last-minute Hail Mary?

But even allowing for a sunny disposition which usually nudges me towards light rather than darkness, there are solid reasons for dismissing the cynics. After some extremely tough years headlined by bleeding State Owned Enterprises, Covid and the July Riots, South Africa’s luck is indeed turning.

The bank account doesn’t lie. An extraordinary revenue windfall pushed national tax receipts R182bn beyond what had been expected this time last year. For context, to achieve an identical bottom result, the Finance Department would have needed a six-percentage point surge in VAT (or an identical increase in personal income tax rates).

The lion’s share came from a surge in corporate income tax, again most of which came from the impact of the commodity price boom on mining company profits. So even though you may not realise it, all South Africans have a vested interest in pulling for that longed-for Super Cycle.

Even more heartening is the way the windfall is being used.

Granted, a R44bn chunk has already been spent on “Covid-19 relief” via an extension of the social grants and half as much in direct costs of the July Riots. But given the ANC’s poor performance in the November polls, cynics may have anticipated a far bigger allocation to any vote-catching proposals. Not yet, maybe. But then again, maybe never.

Treasury’s increasingly confident director-general Dondo Mogajane confirmed the bulk of the R182bn windfall will go towards reducing this year’s government borrowing. In other words, not adding to the debt mountain for the first time in well over a decade.

That is a meaningful turnaround. Evidence, too, that SA is now seriously willing and able to tackle Zuma’s legacy of a debt-to-GDP ratio that ballooned from 26% to over 50% under his unlamented tenure. One now over 70% due to recent challenges.

This country’s newfound practical fiscal conservatism is reflected in the Budget’s meagre R5.2bn in direct tax relief – just over half of which is via an expected but abandoned “non-adjustment“ to the fuel tax; the balance of R2.2bn through a 50% increase, to R1,500, in the employment tax incentive.

Also, the tax tables have been lowered by 4.5% at a nominal cost of R13.5bn to offset fiscal drag. Sceptics will argue that this is an obvious course in an inflationary environment. But as we’ve seen in recent years, this is by no means a baked-in approach by Treasury.

What about the elephant in the room – the public sector wage bill?

In recent Budgets there’s been more fancy footwork on this front than by Mohammed Ali in his prime. Among them, a hyped-up early retirement proposal that nobody accepted. For his part Godongwana is banking on “restructuring” the wage packages, just like any other employer, he says. We’ll get an idea of whether he is more successful than his predecessors soon enough. The finmin and his team meets with organised labour towards the end of March.

What heartened me most about the exercise was the firm response to a question I pinged about retribution for the multinational professional partnerships which facilitated the perpetration of State Capture. Specifically Bain, the Boston-headquartered firm, which according to reports is still selling its wares into the public sector.

Again, relax. Their day of reckoning is coming. Not just Bain but McKinsey, KPMG, SAP et al, plus those global legal firms which have thus far managed to stay out of the public spotlight.

The message from the keepers of SA’s national purse is that simply paying back ill-gotten fees is nowhere near enough. The country will demand a recoupment of the true cost of actions by these multinationals actions on behalf of their nefarious clientele.

Perhaps Godongwana’s newly relaxed state is aided by a belief another windfall of commodity boom proportions is coming. SA is certainly due. And more to the point, why not?

Depending on who you ask, the cost of State Capture was anywhere from one to two trillion rand. Even a modest slice of that would be enough to repeat the 2022 booster that made this Budgetary exercise the least stressful in over a decade. And from the ANC perspective, a useful card for vote catching in the run-up to the all-important 2024 National Election.