The ANC’s partners in the Government of National Unity (GNU) might have just saved the ANC from itself.
Had the ANC’s partners in the GNU not stopped the VAT rise proposed in last week’s Budget at a last-minute Cabinet meeting, the ANC would have taken a big hit in next year’s municipal elections.
A rise in VAT from 15% to 17% would have generated popular fury. But a combination of the VAT increase and Eskom’s tariff rise of 12.7%, due to take effect in April, would be a slap in the face of the poor.
A virtually flat economy and an inflation squeeze could still severely damage the ANC’s municipal election prospects next year. The ANC will have to take the blame for its consistent mismanagement of Eskom. ANC support has fast eroded since last year’s election, from around 40% to just 32% last week, according to a Social Research Foundation poll. The ANC needs to tread very carefully in any Budget it comes up with on 12 March.
The party is in a bind, as higher taxes were always the easy way out of its problems. Now it might have to hurt its closest allies in the public service unions and the tenderpreneurs who benefit from procurement. Our fiscal problems would be eased with a far higher growth rate, but the ANC would pay a political price if it went ahead with growth-generating reforms such as privatisation, scrapping red tape and going ahead with labour reforms.
For the past week the parties in the GNU have been negotiating where the cuts should fall, in order to make up for the revenue from the previously proposed two percentage points in VAT.
In desperation, the ANC might resort to a wealth tax to fill the financing gap, something that parties other than the DA might support to show they are on the side of the poor. The imposition of a wealth tax would be easy, but counter-productive, and might induce those who generate the most revenue for SARS to flee.
The constraints on borrowing are tightening fast as growth falters and the debt burden grows. Unable to borrow much more except at high interest rates, or to squeeze out a lot more tax, the ANC will have to find deep spending cuts.
There are many places to cut, but few on their own could yield the mammoth savings needed for a turnaround. Cutting down the size of the 34-member cabinet, one of the largest in the world, would be a good place to start. And re-negotiating the Southern African Customs Union agreement, under which we are giving away far more than we should, could save us billions.
Ending special programmes for youth and women, which government departments already have, would yield further savings. The Treasury has said that there won’t be further bailouts to public enterprises, but watch out for exemptions or special arrangements to help municipalities pay their arrears to Eskom.
A comprehensive spending review would yield many other areas that could be cut, with some possible pain for ANC constituencies.
There are two categories of spending to look at for really big savings: public sector salaries and procurement. Both are politically treacherous terrain, with the public sector unions, ANC-aligned tenderpreneurs and some officials likely to resist changes.
Tackling the public service wage bill is difficult for the ANC as the civil service is dominated by the party’s union allies. As a share of GDP, the public-service wage bill has been on a continuous rise since 1994, reaching more than 10% of GDP in the 2023/24 financial year. This is although there has not been any mammoth increase in the number of civil servants. More teachers and nurses are required, but because of the pay costs, the public service cannot be increased in places where it needs to be.
Last year, the public servants were given a 5.5% increase for the 2025/26 financial year, and an inflation-linked award for the two subsequent years. Since President Jacob Zuma’s award of generous pay increases to the public service, these have continued, albeit not on the same scale. There are plans for early retirements, but restricting future pay increases will bring about a conflict with the unions.
Getting control over public service pay promises to be a perpetual struggle and is not something that can be done overnight. The state needs flexibility: to cut the public service in some areas but also increase the number of teachers and nurses.
Installing a revamped procurement system will also be a battle.
Ten years ago, a National Treasury report on government supply-chain management said that savings from improvements in procurement practices could amount to 20% of the cost of the goods and services that were bought: a saving of about 3% of GDP.
SA public procurement was 15% of GDP in 2021/22. Of this, the national government was responsible for about 24%, and local and provincial governments and state-owned enterprises for the remainder. These figures come from a 2023 IMF report on SA public procurement. There is virtually no transparency on either the overall level or the categories of public procurement in Treasury’s budget documents.
The procurement system is rotten. Citing the Treasury supply-chain management report, the IMF says there is weak enforcement, bribery, nepotism, fraud, theft, conflict of interest, collusion and bid-rigging, abuse and manipulation of information, discriminatory treatment, waste and abuse. There is a lack of integration of multiple IT systems and insufficient transparency. The government’s large buying power is not used, and decision-making is lengthy.
The Zondo commission reported on how the preferences for empowered and small firms have been used as a means for corruption and state capture. The IMF points out that it is difficult to assess preferential procurement outcomes given the lack of transparency. Public procurement is only one way of pursuing preferential policies that must be balanced against value-for-money. What is the premium the taxpayer pays for the preferences that are set aside for empowered companies?
The government has only partially acted on recommendations for improvement in the procurement system. Other countries have greatly benefited from reforms to standardise procedures, introducing e-procurement systems which help reduce corruption by limiting contact between officials and bidders, and establishing records, centralised purchasing and improved transparency.
One significant driver behind the rise in public procurement is the cost of accruals, the result of suppliers imposing higher prices to make up for delayed payments. In many cases the Government just does not pay on time.
After years of diagnosis on the rotten procurement system and high civil service pay, a local Department of Government Efficiency could bring at least the hope of progress.
[Cartoon: David Doubell/Toons]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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