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This interview was originally aired on RSG Geldsake in English, with a short Afrikaans introduction.
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Best budget in years – but from a very low base
Budget in a minute
RYK VAN NIEKERK: On the line now is Ashor Sarupen. He is the Deputy Minister of Finance. Ashor, thank you so much for your time. I think the budget was generally well received, but it follows last year’s when we were stunned by the initial two percentage point Vat hike. Was there a lot more consultation between the minister, National Treasury and other stakeholders in the government of national unity, the GNU?
ASHOR SARUPEN: Well, the entire budget process has been reformed, so that political parties in the GNU could have a say up front very early on. I obviously come from a different party to the minister myself.
We started this process quite early on and had six weeks of consultation to get to this point where we could table a budget without too much trauma or drama – and get one that is well received by the markets, well received by business and, more importantly, well received by households.
Of course last year we were looking at, as you described, the 2% Vat hike that left everyone stunned.
This year we’ve withdrawn the proposal on R20 billion in tax hikes, and we’ve actually done a whole lot of tax relief.
So it’s quite the opposite of where we were last year.
RYK VAN NIEKERK: It’s not very easy, as you know, to satisfy investors, the markets, the private sector and consumers. What were the main priorities and changes during this new consultation process?
ASHOR SARUPEN: We started all the way back to the Medium-Term Budget Policy Statement, and the MTBPS law was designed to foreshadow the February budget.
What we saw in the process of consolidating the MTPBS is what the binding constraints in which we can draw up a budget are – obviously tight fiscal space, high debt and all of those problems – and what we actually want to achieve.
And so we made a whole series of commitments in the MTBPS that we’ve agreed to maintain all the way through.
I think by properly having that discussion and thrashing it out in the government, we got to a point where we produced something that, in spite of the complexities of trying to keep everyone happy – and of course there are trade-offs and not everyone can be happy – I think we’ve produced something that provides South Africa with maximum fiscal credibility within our constraints.
And I think that that’s the most important thing.
RYK VAN NIEKERK: I agree with you. Our fiscal position was slipping. It’s been slipping since I think 2009, and we’ve just seen an increase year after year of the total debt-to-GDP ratio. It seems to be at a turning point at the moment. That’s mostly due to the primary surplus of around R72 billion. It’s 1% of GDP. In the greater context that’s not a lot of money, but at least it’s a step in the right direction.
Was there a target set to the primary surplus, or was that just what was left after all the other budget priorities were taken care of?
ASHOR SARUPEN: We have targeted, since the start of GNU, running consistent primary budget surpluses and growing surpluses.
And we put into the 2024 MTBPS for the first time that the budget will be anchored in growing primary surpluses. That was the key thing.
At the time, obviously, the fiscal position wasn’t as strong. We did put in proposals, but that is now coming in stronger than in the first MTBPS at the GNU in 2024. So you are seeing that coming in stronger, and our primary surplus is now growing greater than it was in 2008 when, for the first time [we were] running those surpluses, and before it all went off the rails.
And you see that growing. You know, 1% of GDP is not a lot of that R72 billion.
But considering we were running massive deficits – and then in the Covid year of course we ran a huge deficit – to now be in a position to run and to grow that surplus and anchor the budget and say we are going to be spending less money in expenditure than we take in in tax revenue, and consistently do that and take the pain to do so as a government, when of course everyone makes demands on the fiscus …
But to say this is actually the anchor of our fiscal strategy is, I think, quite a big and bold thing to be able to do and then commit to year after year, and grow it year after year.
Of course, if we don’t meet it, the critical thing is we do publish our forecasts and so on. It will continue to grow in this fiscal year and next year. The market will punish us because, by meeting these targets along the way, as we go along what happens is our bond yields compress and our debt service costs come down because we have more and more credibility in the marketplace – which actually frees up fiscal space.
And if there’s one lesson we must learn from the immediate democratisation of South Africa it is that, unlike many other countries, in South Africa economic growth tracks our fiscal conservatism.
And the more fiscally conservative we are, the better our growth is.
It’s when we sort of go hell for leather on expenditure – as we tried to do from 2009 until 2024 – that growth actually falls off.
So there’s no strong correlation between government expenditure and growth in South Africa.
RYK VAN NIEKERK: No, definitely not. I think as you said, that has been proved over the last 15 years. Will the full R72 billion be used to reduce debt?
ASHOR SARUPEN: Yes, that is exactly what the primary surplus is intended to do. It is critical to the debt management strategy, and that’s why it has to keep growing. The more that amount grows, the less we borrow.
The critical thing is there’s a [difference between] primary surplus and the actual surplus. The primary is your tax revenue less primary expenditure, and then you borrow, obviously.
What we were doing for the longest period is borrowing to cover current expenses. It’s a bit like using one credit card to pay for another credit card.
But now what we’re doing is we’re paying back the credit cards – and we’re paying back the credit cards from our own savings. But we still have an overdraft, and we’re borrowing for the overdraft.
But as the primary surplus grows and you look into the outer years and so on, it’ll begin to start matching what used to be our deficit.
From 2009 until fairly recently we had a structural deficit in our budget of 5% of GDP, and that’s going to fall as the surplus grows. If it falls to 3%, 3.5% in the outer years of the current budget eventually we will start running actual surpluses as we get into 2030 and beyond. That means that we will be spending less and not borrowing – but just using the money to settle primary debts.
RYK VAN NIEKERK: There was an announcement expected regarding a ‘fiscal anchor’, and it has been mooted in the past by the president as well as by [Finance] Minister [Enoch] Godongwana. I was actually surprised that there wasn’t more detail in the budget about the fiscal anchor, because that will be a critical piece of – I don’t know – legislation or a regulation, but it will act similarly to, say, an inflation target, and that will provide us with a tangible guideline of what will happen with the fiscal outlook of South Africa.
Why wasn’t there a more pronounced announcement about this anchor?
ASHOR SARUPEN: We did commit that we would be bringing the fiscal anchor – in this speech today – during the MTBPS process later this year, the consultations. We started the process last year quite late because we had budgets one, two and three – infamously. Then the fiscal anchor was published with budget 2.0.
We went through the consultations and so on and what the design of that must look like. It will take the form of legislation, either primary legislation – its own – or legislative amendments to existing laws.
That process will be announced in the MTBPS, but it very much is there.
Of course, the politics of it is interesting and different parties have different views.
Part of what we’ve got to do now is make sure that we get maximum buy-in, because it is one of those key bold and far-reaching reforms I think the inflation targets for us.
It is critical because, once you anchor your monetary policy, you’ve got to also similarly anchor your fiscal policy.
So it is very much on the radar and absolutely critical for us going forward.
RYK VAN NIEKERK: Just lastly, the minister in his speech referred to PPPs, public-private partnerships [PPPs], and it’s evident that the government wants to increase or improve service delivery through PPPs. He said there were 63 PPPs in the pipeline, but he also said that not a single major PPP has been signed in five years. Why has there been such a delay?
ASHOR SARUPEN: Primarily it’s because of the regulations.
If you speak to some of the colleagues in the actual infrastructure delivery space, our regulatory environment doesn’t quite support this.
The colleagues in Infrastructure South Africa, for example, tell me that to get an infrastructure project off the ground requires 52 different kinds of permits between local, provincial and national government.
And so we have published streamlined regulations to make sure that we don’t have the situation where it takes five years just to register one and get it off the ground; that’s why the pipeline has started growing, and that’s why the minister referenced the 63 projects now at different stages of development.
The one thing we are working on that’s going to be quite important is that we’ve published the new PPP regulations for national and provincial governments.
But for local government, where the bulk of our infrastructure expenditure now needs to happen to sort out water and those sorts of things and the local municipal infrastructure …
The reality is that in many municipalities, because of either incapacity or corruption, they shouldn’t be trusted with infrastructure in many cases – particularly in the smaller places.
So we’ve got to move to that framework. That next step for us to make sure we get a PPP pipeline in place is for local governments.
But yes, until the revised regulations were published last year it was very, very difficult to get a PPP off the ground because of the red tape.
RYK VAN NIEKERK: Ashor, thank you very much. That was Ashor Sarupen, the Deputy Minister of Finance.
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