/ 25 February 2016

Editorial: Is this the Zupta-proof budget?

Former finance minister Nhlanhla Nene and his predecessor and successor Pravin Gordhan.
Former finance minister Nhlanhla Nene and his predecessor and successor Pravin Gordhan.

Most of the focus on this week’s budget has been on whether or not Finance Minister Pravin Gordhan has done enough to ward off a downgrade by the international credit rating agencies, allowing us to keep our noses above water rather than sink into the quagmire of being rated as junk.

But there’s a bigger and more important question: Has the newly reappointed Gordhan done enough to restore the sound management of our public finances after “Nenegate”? That was when President Jacob Zuma showed he was prepared to put the interests of his family and associates ahead of South Africa by yanking Nhlanhla Nene from the finance ministry because he resisted signing off on suspect deals involving the country’s national airline and nuclear capacity.

As the country’s currency and bonds collapsed in the immediate aftermath of Zuma’s Nene manoeuvre, wiping R500-billion from our equity and bond markets, former finance minister and ex-South African Revenue Service commissioner Gordhan was brought back to restore calm and credibility. Nene had by then identified one of the key financial challenges the country was facing – the runaway cost of the civil service – but had yet to announce a plan to tackle the problem.

This is the challenge Gordhan rose to this week. Notwithstanding a three-year wage agreement with public-sector employees, through restructuring and attrition he will reduce this cost by R10-billion next year and R15-billion the year after that.

Gordhan will bring a sense of equity to these tougher times, though he’ll do it by means of R18-billion in new tax revenues that will be managed without introducing a mooted new super-tax bracket. The rich will make the biggest contribution, lower-income earners being protected with bracket adjustments for inflation.

But there is much more in the budget to fight wastage, corruption and fraud. This includes centralised tendering through the e-tender portal, and the chief procurement officer has been mandated to save R25-billion a year with better-managed state procurement processes. He is also charged with reviewing all contracts valued at more than R10-million, a process that began under Nene last year.

The renegotiation of all leasing contracts was also announced, there are new limits on the price of vehicle purchases and a national travel policy for civil servants is being developed to manage public spending better.

The mess that masquerades as state-owned enterprises is also in focus. The finance minister, noting that these enterprises are making far too great a demand on the public purse in the form of transfers from the treasury, made it clear that they need to operate efficiently and pay their own way.

Gordhan spoke of implementing nuclear energy only if it is affordable, rather than committing upfront to a full fleet costing R1-trillion or more. Whereas Zuma has appeared to believe that the decision to commit to the fleet, probably supplied by Russia’s Rosatom, was something that could be done without transparency, Gordhan this week backed the notion that the nuclear tender should be sent to the joint treasury and department of energy unit, which vets all energy procurement from independent power producers. The office has been responsible for the country’s open and competitive renewable energy procurement programme.

“We’re really serious when we say good governance is non-negotiable. It’s time that individuals or groups of individuals stop playing with state entities, whether they’re state enterprises or other government components, as if it’s a personal toy from which you can extract money when you feel like it,” Gordhan said on his reappointment, following the “Nenegate” debacle.

He warned more generally in this budget that South Africa is at risk of becoming a “kleptocracy” if there is no improvement in business ethics. “There are many parts of transacting between government and business which have gone seriously wrong and if we don’t stop it, we’re going to become a kleptocracy,” he said at a post-budget breakfast on Thursday. “Government and the private sector … must change the ethical system.”

He likewise expressed concern that too great a portion of the funds spent by government does not reach its intended destination because it is siphoned off by intermediaries. “We need to know, for every R100-million we drop at the top, how much of it reaches the people on the ground,” Gordhan said. Parties in the middle were taking more than their due, he said.

We do not want a ratings downgrade: it would signal a probable further increase in the cost of borrowing, reducing the country’s physical and social infrastructural ambitions. But sound management of the public purse is not only necessary to maintain our creditworthiness: we need it for reasons of good governance. We cannot expect continuing levels of high tax compliance when the First Citizen is prepared to put his and the interests of his associates ahead of everyone else’s.

The budget may or may not please the rating agencies. But it should please all South Africans who believe we deserve better than what Zuma would give us.