SIMON BROWN: I’m chatting now with Citadel’s chief economist, Maarten Ackerman. Maarten, I appreciate the early morning. We’ve got our a Medium-Term Budget Policy Statement (MTBPS) next Wednesday from the [finance] minister.
My sense [is that it’s] maybe a little smaller than in previous years. The question, as always, is what they do with that revenue overrun. Do they spend it, do they put it to debt and be sort of wise and cautious with it?
MAARTEN ACKERMAN: Good morning, Simon. I think at least there is an overrun, so that’s a positive. We’re looking at about R100/150 billion more than budgeted in February. The reason for the overrun, quickly, is obviously I think a credit to Sars. After state capture they really sorted out their house, and there is definitely a pick-up in collection. But also the commodities [have] been quite strong. We know that that’s not going to last. And then [there is] a high inflationary environment, so taxes obviously collected from nominal tax; you get that kind of inflation lift.
And you’re right, now the big question is okay, so what do we do with this? I think where we are right now, we are definitely in a slightly better position in terms of the fiscal cliff and the debt trap. But that really goes down to how they spend this. If they use this for a once-off stopping [up] a hole or something, then it’s unsustainable. So you wouldn’t want to see that they use this now, for example, to sort out Transnet, giving them above-inflation increases, because that will just increase your expenditure for the long term.
So we would like to see that they do things that are actually growth-enhancing with this overrun, but at the same time making sure that we can continue with some of the social support that’s been in place,
because, until we wait for the economy to create enough jobs, we need to look after the poor. Otherwise we will just see more unrest like we saw last year in KZN (KwaZulu-Natal).
SIMON BROWN: Does some of that money perhaps go for Eskom? They’ve got a debt burden of R400 billion that’s completely unsustainable for Eskom. Although it’s Eskom’s debt burden, truthfully it rolls down to the government and it comes back to us as taxpayers. Are we going to see a bit of a bailout? I know Eskom has requested on that debt that government pays it or takes it onto its balance sheet.
MAARTEN ACKERMAN: Yes. I do think there’s going to be something about that in the budget. In February, actually, they alluded to potentially looking at taking over some of the debt, and then indicated that there will be more in the mid-term budget.
At the moment, the [finance minister Enoch Godongwana has] said that the final details will probably be tabled in the February  budget. Remember, the mid-term is almost an update in terms of where we are, giving a hint of what might happen in February. But February is really where the things are being implemented.
But I think you’re right. There’s definitely going to be some restructuring of debt and using some of this overrun in revenue to do that. It won’t be all of it. It’s just too much that R400 billion (Eskom’s debt). And they made it quite clear in February that any SOE, any state-owned enterprise, needs to add value and stand on its own legs. But they left the door open, I guess, only for Eskom to say, well, we can’t do without electricity. But that money’s not available for any of the other SOEs.
That’s part of the concern, because currently there are noises to say, well, Transnet might be the next Eskom if we don’t do anything right now. But that’s a mistake we made a couple of years ago with Eskom.
Because you can’t just keep on throwing money at your problems. You don’t really sort out the underlying problem in terms of what is making the SOE less efficient.
SIMON BROWN: There are some critical SOEs [like] Eskom. And then of course [there are], with respect, SABC, SAA, a whole bunch of others, perhaps be less critical.
And then of course more updates on fiscal reform. I think every six months, either at budget or the mid-term budget policy statement, [there is] a sense of ‘we want updates on fiscal reforms’. Also, ‘we want implementation’, I suppose. Updates are great, but we want to see that they’re actually being rolled out and implemented.
MAARTEN ACKERMAN: Yes. Not only fiscal reform, but basically all the other reform and policy changes [that] have been communicated during the February budget, to see if we are making progress with those.
I think we are making slow progress. There are some very positive things happening on the ground which you don’t see in the daily newspaper – things that will take a bit of time to actually show up in the real economy.
But at least we are stepping in the right direction because, if we haven’t done that, then you’re not starting to rebuild capacity.
I mention, for example, the scrap on electricity generation [licensing threshold]. That really paves the way for a revolution. I think at the moment the amount of non-Eskom electricity that’s coming online is exponential. So updates on those – which can give us as indication in terms of what the potential growth can be over the next three to five years – will be quite helpful.
And then in line with that, how do they plan? We already spoke about the SOE Eskom, but [what about] the rest of the budget? Because they’re still busy with the public-wage negotiations and they haven’t settled there. That is 40% of the non-interest budget, so it’s a big chunk. And again, [with] those kind of things, if you make a wrong step there you bake that increase into the cake for forever. That lifts your expenditure, and then it’s so much more important to actually make sure that you’ll get the revenue through high tax collection on a faster growing economy, rather than increasing tax. If that’s not the case, this whole thing about the debt spiral, debt crisis [kicks up]. A lot of people stop talking about it, but I think it’s still a risk because we don’t see that sustainable growth yet, and we’re still sitting at very high debt-to-GDP levels.
That’s why it’s so important that we don’t spend the overrun on the wrong items.
SIMON BROWN: A quick last question. Aside from when [former finance minister] Nhlanhla Nene got fired back in 2015 in an attempt to essentially capture Treasury, and a few finance ministers just after that who were perhaps less than ideal, broadly our Treasury team, our finance ministers, can stand proud. It is a part of our government that, by and large, most of the time – and those are my two caveats – [is] a good team.
MAARTEN ACKERMAN: Yes. I think the current team is excellent. It’s not just about the team at Sars and the minister of finance, but it’s obviously also who is in charge of the administration. So a lot of the issues they had at Sars back then was [partly due to] part of the team, and also the minister of finance, but it was actually the top leadership that influenced [them] quite badly.
I think where we are right now, we’ve got a strong team back. I’ve already alluded to the fact that they’ve really done good work in terms of just restoring a lot of the ability within Sars to actually do what they need to do. That’s making sure that we collect the taxes that we can collect. So I think we’re in strong hands. The minister of finance developed the Economic Recovery Plan, so he knows exactly what needs to be done. So it is about spending what we’ve got wisely. And then the old, old thing about making sure that we can implement – and unfortunately that’s not in his hands.
You can put the budget on the table, make sure the money gets to the municipalities, but if there’s a lack of ability at municipality level, then that’s really where we start seeing the issues in terms of not implementing policy.
SIMON BROWN: It’s that capacity down the line. We’ll leave it there. Maarten Ackerman, chief economist at Citadel, I appreciate the early morning time.
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