The medium-term budget policy statement is the finance minister's bid for numerical respectability – a fiscal policy bridge across the trust gap that is pushing up government borrowing costs, scaring off capital and threatening currency stability.
It is hard to imagine him doing a much better job of it under the circumstances. But there is no gilding those circumstances and the finance minister's annual budget update arrived in the face of a different, but closely related, set of trust problems: those of South African citizens angry about brutal increases in the cost and the poor quality of services and increasingly suspicious about the diversion of funds into what Gordhan himself calls "vanity projects", or worse, corruption. Sluggish economic growth and persistent unemployment compound those difficulties.
There is no new stimulus to offset declining growth expectations (down from 2.7% to 2.5%) and yet debt – and the cost of servicing it – is increasingly sharply. As a proportion of gross domestic product, debt will nearly double from 22% before the financial crisis to just under 40%. Services costs, already up to R89-billion in 2012-2013, will shoot up to R115-billion in 2015-2016.
Recent data show that poorer South Africans are loading up on debt – much of it apparently to pay for current expenditure such as groceries – whereas the wealthy are deleveraging, paying off their bonds and delaying big-ticket purchases. Like better-off locals, rich countries are trying sharply to cut debt – perhaps hurting their recoveries in the process. South Africa, like its low-income citizens, must borrow not just to fund the capital projects that will secure future growth, but to pay civil servants and keep its head above water.
Rebound in tax revenue
And yet the numbers, in a broad international context, remain credible.
There are threats to their sustainability, reliant as they are on a recovery in global growth and on a rebound in tax revenue, which underdelivered by R5-billion on expectations this year.
In fact, tax collections would have been worse but for improved value added tax and customs revenues. It bears pointing out that those are indicators of increased consumer spending, much of it funded by increased debt that cannot grow much more. "Short retail," said one chief executive whose bank has done well from unsecured loans, "you may have to wait a year, but it is coming."
If earnings in the resources sector – R10-billion down thanks to post-Marikana labour unrest and weakened by the global slump – do not recover, the threat will grow.
Even now, the shopping that is filling the revenue service's coffers is combining with lower exports to push up the current account deficit.
Foreign purchases of South African bonds, which are heavily dependent on both confidence in government policy and cheap lending by rich-world central banks, are now crucial to maintaining currency stability. And if they were suddenly to stop, ugly things would happen at the heart of the economy.
Reading between the lines, this is a budget framework braced against more difficulty – international and domestic. So much for pacifying the rating agencies.
South Africans are a more complicated audience. Gordhan went out of his way to point out that "growth in tax revenue is thanks to steady improvements in the compliance of taxpayers, which is a cornerstone of the social compact on which our capacity to invest in development and social progress rests".
Indeed, a willingness to pony up to a democratic government the taxes often withheld from its illegal predecessor has been critical to the success of the post-1994 project.
"We should never take this commitment for granted," Gordhan remarked.
He is right. There are early indications that it is coming under threat. Tax officials privately say there are signs buried in the data of wavering compliance. Complaints that the government cannot be trusted to spend money cleanly or efficiently fuelled the revolt against e-tolling. Exceptionally rapid electricity price increases are likely to deepen this problem.
Gordhan knows this and stressed both the political "commitment to ensure we spend taxpayer money wisely and receive the best value for money" . He did not, could not, mention Nkandla – that thatched and bullet-proofed symbol of presidential extravagance – but at the level of fiscal commitment, he is promising to find efficiencies throughout the government.
Quoting the national development plan, he concluded his speech: "The capabilities that the country needs to enable citizens to thrive include a capable state, leadership from all sectors of society, a pact for mutual sacrifice and trust."
Gordhan is not a member of the ANC's national executive committee. That may insulate him from some of the cruder politics of this period, but to restore trust in state institutions and settle the labour crisis that is roiling the country he needs to win the politics, not just the numbers. For that he needs help.
The numbers are stressed. If the politics do not take a turn for the better, they will not hold up forever.
See the rest of the M&G's medium-term policy statement coverage:
Government debt to rise as tax revenues wobble
Pravin Gordhan has offered some optimism for SA's economic outlook, despite his mid-term budget signalling plans for a rise in government debt.
Midterm budget: Government failing to create jobs
The midterm budget policy statement has revealed that the government is failing at creating jobs, outside of the expanded public works programme.
Midterm budget: Money put aside to revamp mining sector
In response to developments in mining, the medium-term budget policy sets out imperatives to modernise the industry and amend labour relations.
Development cash linked to delivery
The government wants more bang for its buck when it comes to provincial and local government infrastructure roll-out.
Midterm budget: Strikes cost economy dearly
The treasury says unrest has had a negative impact on growth, adding tax revenue will be lower as wildcat strikes are estimated to have cost R10bn.
Fighting talk from Pravin Gordhan
Finance Minister Pravin Gordhan tightened his belt, chided the country's critics and delivered a no-nonsense medium-term budget policy statement.