Two elephants in the budget room

There are many reasons why Wednesday’s budget will be a very tough one with many different taxes raised, There are the usual frequently mentioned reasons and two big ones that seem to have been overlooked by most budget soothsayers.

The obvious reasons include the underperformance by SARS, government overspending, the huge cost of the bloated and overpaid civil service, free education, the state of the SOEs and the need to show rating agencies that the government is getting its spending back under control.

2019 is an election year

But to my mind, one big elephant in the room is that the budget after this will be the last one before the 2019 general election. No government likes to increase taxes just before an election. Indeed they invariably like to reduce taxes and increase handouts at such times. I am sure the ANC is no exception.

So, aside from dealing with demands pressing in from all sides, the ANC will want to get all the bad news out of the way so that in a year’s time it can offer a far friendlier budget than this one will be.

World Bank / IMF

As we bathe in the afterglow of the Ramaphosa election, the Zuma resignation and the apparent reawakening of the Hawks and possibly even the NPA, it is easy to forget that the government has brought South Africa to the very brink of financial disaster and that we are still on that edge.

Yes, we now have hope, when before we had none. But the financials have not changed. There is still a huge budget hole that needs to be filled, the SOEs including Eskom still owe hundreds of billions, and government debt is close to becoming unmanageable.

The government needs to present a budget that proves to local and international banks that the government has the balance between its income and expenditure under control. Should this NOT happen, the lenders will stop lending and government finances will implode.  The only solution then would be to turn to the big international agencies (World Bank and IMF, forget the tiny BRICS bank) for help. In that case, they would set down conditions and be in virtual control. And nobody wants that!

Budget of pain

So, this will be a budget of pain that can be mainly blamed on the now departed Zuma and the soon to be departed Gigaba. The public won’t like it and the ANC will be uncomfortable, but that would be better for the government than a painful budget both this year and next year.

Brace yourself for the pain and look forward (if all goes well) to a happier budget next year.

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