tITO mBOWENI sin tax vape tax budget speech

Minister of Finance Mr Tito Mboweni as he prepares to present his 2019 Budget Speech during the Plenary of the National Assembly , 20 February 2019. Parliament, Cape Town. Elmond Jiyane, GCIS

Tito Mboweni’s bad news budget day: Preparing for ‘the worst’

Brace yourselves, South Africa, because today will be grim.

tITO mBOWENI sin tax vape tax budget speech

Minister of Finance Mr Tito Mboweni as he prepares to present his 2019 Budget Speech during the Plenary of the National Assembly , 20 February 2019. Parliament, Cape Town. Elmond Jiyane, GCIS

Finance Minister Tito Mboweni will this afternoon be faced with a tough choice between lofty ideology and stark reality when he presents his medium term budget policy statement (MTBPS) in the National Assembly of Parliament at 14:00.

If people did not know the extent of the trouble the country is in, they will realise it by this afternoon.

Yesterday was a stark reminder in this regard, with unemployment at the highest level, since quarterly measurement thereof began, and increasing rapidly.

Will Mboweni admit the possible complicity of the national minimum wage on new job hirings, which has seen the national unemployment rate soar to 29,1% and youth unemployment to a staggering 57%, which is the highest in the world by some respected measurements?

Mboweni to address the Eskom crisis

To the unflappable Mboweni, rather than his polished colleague, the Minister of Public Enterprises Pravin Gordhan, does it fall to announce the ways in which Eskom, as the greatest threat rather than its supposed role as greatest enabler of the national economy, will collect the debt owed to it and pay the debt owed by it.

Gordhan skirted the issue when he announced his oddly named Special Paper on Eskom yesterday, but in the fine print there was an important proposal which will prove to be very controversial. It states that National Treasury will withhold parts of the municipal grant from municipalities which have outstanding Eskom debt in order to pay off that debt.

Much as that sounds level headed and entirely necessary in principle, politically it is highly risky.

It will give poorly run municipalities someone to blame for their imminent collapse. The main reason these municipalities are collapsing is because their political masters in the ANC refuse to take unpopular decisions, and many of these relate to payment for electricity.

At last count, Eskom municipal debt stood at R25 billion, nearly all of it from ANC municipalities who refuse to make users pay and who, when they do receive payment, uses that income to pay salaries and other commitments rather than pay the money to Eskom.

The proof of the pudding is in the figures – the DA governed Western Cape has more than 10% of the country’s population, yet of Eskom’s national municipal debt of R25 billion, Western Cape municipalities owe only R5 million – a paltry 0,02% of the total.

The reason is simple. In the DA governed Western Cape, your power gets cut if you don’t pay your bills. It is the only sustainable way to run a power utility but it is unpopular in poorer communities and it requires backbone the ANC has not shown.

ANC municipalities the most indebted

In this regard it is important to note that according to the latest figures, of the country’s 257 municipalities, 23 have Eskom debt of more than R100 million each.

All of these municipalities are ANC run and due to the official ANC policy of cadre deployment, a significant number of these municipalities’ employees are ANC members, whose employment – as a result of the policy of cadre deployment – is linked to their ANC connections.

They are the people whose incomes will be affected by any withholding of municipal grants by National Treasury and they are the people who care about their incomes first, and about other issues like service delivery and Eskom debt not a hoot – hence the state of their municipalities.

Economic progress at the mercy of trade unions and ANC cadres

Therein lays the danger of Mboweni’s correct and common sense approach: he is at the mercy of the trade unions and cadres who will eventually decide his political fate and the survival of his policies. That makes for a bleak outlook.

Mboweni and Gordhan will also know that withholding the municipal grant only scratches the surface of the problem and their avoidance of it is disingenuous to say the least. It borders on chicanery. They will know that Soweto’s share of the debt to Eskom is R18 billion but that Soweto gets its electricity directly from Eskom and not through a municipal intermediary.

Yet Eskom does not have the spine to do what is now required of municipalities, which is to cut the power of those who do not pay. The reasons can only be political.

Four questions that need answering

This is not to mention the country’s unsustainable public wage bill (progressively paid more and more to ANC cadres for the same reason of cadre deployment policy stated already), wasteful state-owned enterprises, a worsening macro-economic situation and the threat of overall sovereign junk status, which, through a sanction on much institutional international investment and increased borrowing costs, will make getting out of the hole South Africa is in very, very hard if not impossible.

So four questions remain to be answered:

  • Just how bad will the figures be?
  • Will Mboweni and the rest of the ANC government discover the spine to take and execute the unpopular decisions required?
  • If so, will they survive politically in the medium term? And
  • What will the reaction be of investors and the moneyed classes on the one hand, and of leftist populists in the trade unions, the EFF and large parts of the ANC on the other?

South Africa awaits, and the prospects look dire.