IT IS a truism because it is true: the 2013-14 national budget took place in the harrowing shadow of Marikana. The Marikana carnage, and all that the event entails and implies, has had a deeply sobering effect, not only on government finances but also, consequentially perhaps, on government thinking.
It turns out that the event has had a psychological backlash. Gone are the flirtations with Chavezism, "new" economics, grand social plans and expansive supply-side spending. We are all business now.
At the prebudget media briefing, Finance Minister Pravin Gordhan was full of talk about "challenging times", "tough decisions", "cutting our suits according to our cloth" and "new ways of funding development projects". There was even a suggestion that privatisation might be back on the agenda, a suggestion Gordhan tried, not totally successfully, to stamp out.
Look at the budget numbers — it is easy to see whence this cold wind is blowing. Not only did the budget deficit surprise on the upside, coming in at 5.2% of gross domestic product (GDP), instead of the budgeted 4.8%, but the Treasury has been forced to revise income downward for years to come.
The reason for this pretty big "miss" is instructive too: it is not that the government overspent, it is that the expected revenue just didn’t come in. To have the effect of that magnitude on the budget deficit, this shortfall would have to be pretty big, and so it turned out — a cool R16.3bn shortfall.
The reasons for the shortfall were sobering too. VAT, which disappointed last year, went to the rescue of this year’s budget, coming in R7.3bn higher than expectations. But the other main revenue avenues, personal tax and corporate tax, disappointed by substantial margins. Personal tax came in R12bn short and corporate tax fell R11.5bn short.
The deviation in both cases constitutes about 8% of the expected income.
In the case of corporate tax, it is easy to imagine why this problem arose unexpectedly: the strikes in the mining sector simply reduced profitability and therefore income from one of the government’s main sources of corporate revenue.
But what about personal tax? You might expect personal tax to be more resilient. The reasons this turned out not to be are complicated, but basically they amount to a combination of declining rates of employment, fewer people shifting to higher tax brackets, a decline in government hiring — particularly in the second part of the year — and a deeper application of medical tax concessions.
Looking into the wider economy, some lingering problems are now appearing in starker contrast.
One is the trade balance. South Africa’s trade position has been worsening — something Gordhan pointed out in his speech.
In general, it is difficult to make sense of South Africa’s or any country’s trade position because, ironically, the trade balance can slip into deficit when the economy is improving as well as when it is in decline.
South Africa in 2007 is a case in point — the trade account slipped into deficit in the expectation of higher local consumption.
But now, the problem is compounding for different reasons. Export volumes rebounded after the recession in 2009, but have been slipping downward since then. Imports rebounded too, but more so than exports, and they have declined at a lower rate.
The result is some serious red ink on the trade account — and in the background lurks the mining debacle.
With the deficit rising and holding at a higher level, this shortfall, of course, needs to be financed. This is also pretty sobering. In 2007-08, the government’s net borrowing requirement was zero — in fact, the government was paying down debt. The borrowing requirement then jumped to R23bn in 2008-09 and simply exploded to R161bn the following year. At budget time last year, this requirement was a little more — R169bn. Since income came in short, this now has to be bumped up by R7,4bn.
Next year, the following year, and the year after that, the government will need to borrow about R170bn every year. It is all positively clenching.
In an immediate sense, confronted by declining revenue in real terms, the government faces the usual options: decrease spending, increase taxes or increase borrowing. All of these were canvassed in various ways in the budget: the new tax inquiry announced by President Jacob Zuma in the state of the nation address is to be chaired, Gordhan said, by judge and former tax lawyer Dennis Davis. This may be intended as a signal that business should not be too panicked about the prospect of large tax increases.
Likewise, there will be a new examination of spending, but the details here are scanty too. With expenditure now regularly hitting the budgeted levels, cutting spending is not an option close to the government’s heart. "We will not impose austerity," Gordhan said very firmly in the prebudget media briefing. So expect tinkering here, too, in the medium term, at least until the National Health Insurance scheme gets under way, but no great shakes.
Borrowing is probably already at its peak, so what is left?
What is left is infrastructure spending, and this continues to get a progressively larger slice of the government’s discretional revenue. Yet this too is probably hitting the ceiling. The government is still budgeting for public-sector infrastructure worth more than R827bn over the next three years.
But the tone is different. The biggest infrastructure projects are the two Eskom power stations — Medupi and Kusile — which by themselves are a quarter of the total infrastructure spend. But the budget review says, rather testily, that the commissioning of the plants "has been delayed by labour unrest, weak contractor performance and skills shortages". Clearly, the cost of the power stations, which was pretty high in the first place, is quietly exploding.
With the government now having to deal with a powerful political backlash to higher electricity charges — which are still rising and showing no signs of reaching a peak — the idea that the economy can be saved by some kind of magical Keynesian spending is waning. So what then?
There is one further option, and this is also a Marikana bequest, underlined by the conveniently available National Development Plan. Summarising the 2013-14 budget at the media briefing, Gordhan said: "We need to grasp the opportunity to reposition South Africa."
Hence, the measures that at the start of the Zuma government’s term were controversial, are now amazingly, fully and frankly on the agenda. The change prompts the question: what exactly was that about?
Just like that, the Congress of South African Trade Unions’s objections are in effect relegated. These new measures include a youth wage subsidy, new industrial development zones with substantial tax reductions and a host of other measures to stimulate growth.
The significance of these changes is profound. No longer is the government relying on broad economic growth to provide the tools for social change, and when that doesn’t happen, on stimulating growth through spending.
The new idea is not just higher economic growth, but also a different kind of economic growth, something less dependent on dark pits and fickle commodity markets.
It is a tall order, but the shift in direction is welcome.
• Cohen is contributing editor.