Budget announcements are rarely memorable events in South Africa. But the statement on March 12th by Enoch Godongwana, the finance minister, was one of the most notable since the end of white rule in 1994. That is because it said a lot about the increasingly misnamed Government of National Unity (GNU).
It was Mr Godongwana’s second stab at the speech. On February 19th he cancelled the first attempt at the last minute after the Democratic Alliance (DA), the main partner of the African National Congress (ANC) in the governing coalition, opposed the plans. On this occasion the finance minister went ahead but the leader of the DA said his party could still not support the budget “in its current form”. Though the GNU is not on the brink of collapse, the impasse is a worrying sign.
Local reports have cited the DA’s opposition to any rise in value-added tax (VAT). But the party, which has 22% of the seats in parliament to the ANC’s 41%, has a bigger concern: South Africa’s public finances and lack of growth. Since 2008 the ratio of public debt to GDP has more than tripled, from 24% to 75%. South Africa spends around 20% of government revenues servicing debts, about as much as on health and policing combined. The idea that the country may need a bail-out from the IMF has gone from preposterous to possible.
The ANC is to blame. It has built a patronage state that has repeatedly given civil servants above-inflation pay rises, bailed out failing state-owned enterprises and stolen vast sums through corruption, while adding layer upon layer of regulation in the name of redressing historic wrongs. As a result GDP has grown by just 1.3% a year on average since 2008, slower than the annual growth in population (1.4%). And since the ANC has wasted much of the additional spending, poor South Africans have experienced worse public services.
Last year voters punished the ANC’s record in government by depriving the once-hegemonic party of its majority. The hope was that the GNU would usher in an era of rational compromises and collective decision-making. In practice, the ANC has largely tried to govern as it has always done. The DA has proved something of a pushover, allowing the ANC to make bad laws on property rights and education.
The budget has changed that dynamic. The DA stood firm, insisting it would not support any permanent increases in taxes, including VAT, which Mr Godongwana proposes should rise from 15% to 16% over the next two years. For the DA, getting the debt-to-GDP ratio down by cutting wasteful spending and accelerating growth is the defining issue in the GNU. It says it will not vote for the budget measures in parliament as they stand.
The ANC will to try to call its coalition partner’s bluff. The largest party hopes that a majority of MPs, including perhaps from opposition parties, will ultimately vote for the measures over the next few months. But depending on, for example, the Economic Freedom Fighters (EFF), an unreliable hard-left party that wants to seize land, has its own considerable risks.
Whatever happens, the budget spat has revealed that the GNU, though better than having the ANC and EFF run the country, is not a coalition in the sense that Germans, Israelis or the Dutch might think of one. In the eyes of the ANC it is a tactic that allows it to keep governing while it waits to regain its majority. But that works only as long as it has the votes in parliament.
If domestic politics cannot fix South Africa’s public finances, outsiders may eventually get involved. Some reckless members of the ANC assume the country can turn to the World Bank or the IMF in case of serious trouble. That was always a complacent view. It looks even more so now that South Africa is at odds with America, still the most powerful voice at these institutions. ■
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