Moment of Reckoning: Is Gordhan’s mission possible?
There has never been a more anticipated speech in the democratic era than Finance Minister Pravin Gordhan’s 2016 Budget presentation in Parliament. The Budget this week will signal the end of the good times in government and is likely to introduce biting austerity measures for the first time under ANC rule. For a long time, the Treasury did not have the political support it needed to make bold moves and also faced criticism from the Left for being out of kilter with the developmental agenda. Now Gordhan is in the driving seat and has universal support. The question is how long before he is undercut again and politics trumps fiscal prudence? By RANJENI MUNUSAMY.
This should have been Nhlanhla Nene’s speech to make. He should have been the most closely watched man in the country this week. His name and picture should be flashed on the front pages of newspapers. And he should have been the man leading the Treasury team in presenting South Africa with a rescue plan to save us from financial doom.
But Nene had the rug pulled out from under him while doing what finance ministers ought to be doing – played guardian over South Africa’s fiscal resources and preventing the looters from plundering. Had Nene not taken the bullet in December, however, Pravin Gordhan would not have the significant power he holds now to change South Africa’s course and take decisive action to avert further sovereign ratings downgrades.
Gordhan derived his clout from the devastating financial impact and market reaction to President Jacob Zuma’s decision to fire Nene. The episode taught a quick hard lesson about the risk of playing political games when the economy is so fragile.
In his very first media briefing after his reappointment as finance minister in December, Gordhan made it clear that the message from the markets hit home.
“Our government is acutely aware of the financial impact this had on those who are invested in this economy. As President Zuma indicated when a decision triggers developments such as these, a democratic government has a duty to listen and respond appropriately,” Gordhan said.
He made his intentions clear at the outset about what needed to be done to steady the ship. “We will stay the course of sound fiscal management. Our expenditure ceiling is sacrosanct. We can have extra expenditure only if we raise extra revenue. We will unreservedly continue our fiscal consolidation process and we will stabilise our debt in the medium term,” Gordhan said.
He also forewarned that new measures might be required to increase revenue:
“If needs be, we will accelerate this by either cutting spending or making selective changes to tax policy. Similarly, any revenue raising opportunity will be considered very carefully to ensure that it does not damage growth or affect the poor negatively,” Gordhan said.
But as Zuma said in the State of the Nation Address (SONA) earlier this month, Gordhan first announced cost containment measures in 2013. Although the economy was nowhere near the dire position it is in now, Gordhan said then that it was necessary to “cut waste and extravagance in government”. In the 2013 Budget, he announced measures to curtail spending by members of Cabinet and senior public servants. This included splurges on expensive cars, overseas travel, government credit cards, hotels and entertainment.
Many people, including Gordhan’s Cabinet colleagues, viewed these measures as a PR exercise and continued to live large at state expense. Although the warning lights were flashing then about the need to curb spending, Gordhan was under pressure from the ANC and its allies to finance the “radical economic transformation” agenda. The Treasury was viewed as being tight-fisted rather than prudent. This was particularly evident in public sector wage negotiations when the unions, rather than the Treasury, called the shots.
Even in the election year of 2014, Gordhan stayed on the side of fiscal discipline. In the game of political expediency, Zuma and the ANC continued to talk up radical economic transformation and implementation of the National Development Plan – interchangeably – while Gordhan was forced to hold the line on his own.
It is believed that Gordhan asked to leave the finance ministry because he was fed up with the political pressure and lack of support from the presidency.
After his appointment, Nene stuck resiliently to the process of fiscal consolidation and also refused to bow to political pressure. But Nene tramped on some pretty powerful toes by being cautious on the nuclear build programme and South African Airways, and was therefore made to pay the price.
Zuma’s attempt to install an inexperienced finance minister who would comply with the wishes of his political masters backfired spectacularly, forcing the president to change his decision in four days.
Gordhan’s return to the finance ministry has resulted in him yielding more political clout and enjoying support from the presidency, the ANC and its allies, business and society because the entire country needs his steady hand on the tiller.
But now Gordhan is under even more pressure to offset downgrades by international credit ratings agencies, find more money for higher education and the national health insurance scheme, keep state-owned enterprises afloat and provide drought relief. He has tough decisions to make on taxes, particularly the prospect of increasing VAT, cutting infrastructure spending and privatisation – all of which are likely to result in significant blowback politically.
Nobody wants to make such decisions in an election year. But this time around, Gordhan cannot be viewed as the bad guy raining on the ANC’s parade. Zuma made it clear in the SONA that expenditure will be cut down dramatically and prepared the ground for whatever announcements Gordhan will make on Wednesday. But while Gordhan might enjoy universal support now, what happens in a few months in the heat of the election campaign and societal demands grow?
The #FeesMustFall campaign demonstrated how concerted protest action for a laudable cause can result in government bowing to pressure. What happens when protests build for drought relief, service delivery and student accommodation – all valid demands? How does government say NO?
While Gordhan might appear this week to be the gallant hero holding South Africa’s destiny in his hands, the truth is that this cannot be a one-man show. Government and the ANC cannot rally behind him now because of the economic crisis and then revise their perspectives a few months down the line. Gordhan and the Treasury need everyone to commit to biting the bullet in the medium term, not just to ride through the current storm.
Gordhan keeps preaching about trimming the fat in government but the measures he will announce on Wednesday will not make sense until Zuma takes proactive action to reduce the inflated costs he created in his administration. Zuma’s oversized Cabinet is an unnecessary drain on the fiscus and if talk about cutting down the bloated public service is to be taken seriously, he will need to chop down the executive to a reasonable size. That will be the best demonstration of political support for the austerity Budget.
On Wednesday Gordhan will inflict pain all round but we will need to applaud and thank him for it. He knows, however, that his entire plan of action to achieve a turnaround and boost economic growth will fall flat without political support.
In a country where political bluster and expediency is always on trend, government and ANC leaders had better pay attention to what Gordhan says. There can be only one game plan and it will not be open for negotiation. DM
Photo: Finance Minister Pravin Gordhan delivers his Budget speech at Parliament in Cape Town, Wednesday, 27 February 2013. Picture: GCIS/SAPA.