Budget 2018 is Zuma’s costly legacy

NEWS ANALYSIS

Finance Minister Malusi Gigaba has thanked Jacob Zuma for his leadership during the budgeting process. And well he should have; after all, the 2018 budget would appear to be a last, painful parting gift from the recently resigned president — it is a hefty bill for the mess he has made of the country.

Standard Bank chief economist Goolam Ballim has estimated that poor political leadership has cost the economy R1-trillion. The market’s response to the Zuma-led ANC was to decouple the country’s currency and growth from that of its peers.

But the 2018 budget shows even more damage from the Zuma years — from destroying state institutions to pushing through a R57-billion bill for higher education — which has forced the government to take drastic decisions, such as hiking value-added tax (VAT).

The gaping budget hole, thanks to tax collections being R48-billion less than estimated, is largely on Zuma’s account. As South African Revenue Services (Sars) commissioner Tom Moyane said this week, lower than anticipated revenue was a direct result of lower growth and issues such as tax morality and compliance.


Much of the low growth is a direct result of the political environment, as is tax morality.

“Tax morality is a crucial component of a healthy democracy,” Gigaba said in his budget speech. “It has taken many years and lots of effort to build the foundation of trust that supports our tax morality. We have seen how quickly that citizens’ trust can be eroded by perceptions of poor public governance.”

Moyane, who was appointed by Zuma, has been placed at the centre of state-capture allegations and was instrumental in removing key players at Sars and even former finance minister Pravin Gordhan.

He reinstated his second-in-command, Jonas Makwakwa, despite the ongoing the investigation into his “unusual and suspicious” payments into various bank accounts.

Last week, Ramaphosa announced his intention to establish a commission of inquiry into tax administration and governance at Sars.

On top of an already huge budget hole, Zuma single-handedly added to the burden when, on the morning of the start of ANC’s 54th annual conference, he announced free higher education for students in households earning R350 000 or less a year.

In the budget presented this week, it is now known what this will cost — R57-billion over the next three years, starting with R12.4-billion for this year.

Speaking at a briefing on Thursday morning, Gigaba acknowledged he was surprised about the timing.

“To have this big announcement right in the middle of the budget process, we as treasury are sensitive about that. It would have
been better at the end of the process.

“It’s all water under the bridge though. Now we must ensure this milestone is implemented to give the children of the poor and working-class access to education.”

This amount of money cannot be borrowed from the market without causing further harm to the economy, because investors are particularly concerned that South Africa’s debt is already unsustainable.

Debt to gross domestic product ballooned in the Zuma years — from 31.1% of GDP in 2009 to an expected 51.1% in this financial year. The cost of servicing debt has been the fastest-growing item of the budget for years, and there are concerns South African could enter a debt trap.

The tipping point could be the state-owned entities (SOEs), especially Eskom, where poor governance has resulted in an inability to borrow to meet financial obligations. This places the government’s finances at risk because, if the SOEs’ debts, which are guaranteed by the state, are called in, the country might have to turn to the International Monetary Fund for help.

So to raise money to fund the budget deficit and free higher education, the government has been forced to take the drastic step of increasing VAT from 14% to 15%, the first increase since 1993.

In an attempt to reduce the regressive effect this kind of tax is said to have on the poor, social grants will have to increase at above the inflation rate. Expenditure cuts of R85-billion will also be needed over the next three years. Community development funding, largely for infrastructure grants, will be cut by R29-billion. The treasury defended these cuts, saying they were applied to programmes in which there was inefficient spending.

But critics of these measures maintain the poor will feel the most pain. The 2018 budget “is a legacy of Jacob Zuma’s disastrous management of the economy of South Africa”, the Democratic Alliance’s spokesperson on finance, Alf Lees, said. “The increase in taxes revealed today is symptomatic of an ANC government which has failed to plan ahead and make the necessary cost-cutting measures to shield ordinary citizens from poverty.”

To top it off, Zuma’s legacy lives on in the face of the treasury — his controversial choice for finance minister, Gigaba, presented the budget. When he replaced former finance minister Pravin Gordhan, civil society groups warned that the thieves finally had their hands on the state coffers.

This week, Gigaba was fighting for his future, refuting public perceptions that he had a hand in facilitating state capture and challenging a high court judgment delivered this week, which found he had lied under oath.

In the wake of Hurricane Zuma, green shoots are discernible. The domestic growth outlook is better, with economic growth of 1.5% predicted for this year, the rand is stronger than it has been for three years (it was at 11.68 to the dollar this week) and business confidence is improving.

Although the ratings agencies are yet to give their view of the budget, South Africa’s 10-year bond yield, an indication of the country’s cost of borrowing on the market, is at 7.9%, its lowest since January 2015.

Although tough, the 2018 budget — and the political context in which it was tabled — has provided hope that it was indeed Zuma’s last gift.

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