The Rubicon Budget Speech


TODAY marks the moment when South Africa finally bit the bullet of State-owned Enterprises (SOEs). Admittedly, we all knew this speech was coming, but when Pravin Gordhan, finally got around to it again in his budget, a loud cheer came from the ranks of the opposition. The Rubicon of Economic Reality versus Political Ideology, has finally been crossed.

The problematic of a mixed economic model, which has a market economy on the one hand, and a directed state economic sector on the other, has plagued economists for the past twenty years. The annual bail-outs of state-owned airline SAA now look to be a thing of the past, at least, if the plan already announced in January, and which is now part of the budget, is implemented.

SAA and SAA Express, the international and domestic wings of the national carrier will in all likelihood merge. An equity partner will come on board. The state will relinquish some control in a manner outlined by Gwede Mantashe on the steps of Parliament: “We’ve learnt from the Chinese, we will keep a minority section.” He said to reporters on the question of SOEs. (Exactly what opening up SOEs to private investors means, read here).

Other SOEs such as Transnet could face similar rationalisation, non-performing SOEs will simply be phased out. The public service will be trimmed. Redundant or non-essential vacant state posts will not be filled. The money saved will be better spent on worthier projects.

Little over two months ago, South Africa was facing a major crisis in a sudden cabinet reshuffle, resulting in the country going through three finance ministers in less than a week and causing an unpredictable devaluation of the Rand.

Today in measured tones, and with a speech crafted to reassure the public, Gordhan delivered some major surprises. Fizzy-drinks are set to join the annual Sin Tax. Henceforth, sugar beverages will be targeted by treasury, and yes, the annual rise in the cost of a tipple is starting to send drinkers over the edge, time for other classes of drinkers to contribute.

Other innovations included a recycling tax on tyres, and broadening the contribution of the fuel levy to pave the way for renewable technologies. The major stakeholders in industry will probably be gushing with praise, since an evolving ‘vehicle emissions tax’ will force manufacturers to adopt catalytic converters and other eco-friendly technology such as electric cars. It is unclear exactly how the tyre tax will work.

If you are an environmentalist then news that IPPs will now include coal and gas, is possibly a disaster, unless carbon mitigation measures are instituted. Scrubbers on the three new coal-fired power stations already being built by the state should be mandatory, if they are not there already. Gas to liquid fuels company SASOL has already demonstrated methods of sequestering carbon by growing food. The renewable energy sector has certainly come of age in the budget, and presents a positive side to the usual doom and gloom.

While not immediately obvious, Social Security and National Health Insurance are also big winners, as is Education. Thus a notable budget that will be talked about for years, the least of which is how normal it all sounded after decades of NDP campaigning by various civil society groupings (including Medialternatives) and the short drama which lead up to it.

PS: On the downside, Brazilians are probably cursing us all for taxing two of their major exports, sugar and rubber tyres. It is no coincidence that the South American country received a junk rating on the same day that our Finance Minister announced the BRICS bank would finally be setting up office in Gauteng.

South African’s can consider themselves lucky that it wasn’t us being junked.

SEE: Fix the Economy Stupid and Provide Free Education

 

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