At last we have an indication of what President Jacob Zuma's administration is going to do (and not do), as opposed to what the ANC's alliance partners and its own factions have noisily been saying they think should happen. The national budget cannot avoid being an action plan, and the clear choices it represents are both overdue and reassuring.
Pravin Gordhan's first budget performance as finance minister was impressive. His speech displayed both the instinctive statesmanship and the deft handling of detail that were disturbingly absent in Zuma's state of the nation address last week. Gordhan is a leader. He really is committed to doing something about the glaring inequalities in our society, and he really does believe it is time to stop squabbling and rally around a common vision and purpose.
Gordhan's theme and his inclusive approach were summed up in his approving quote of union federation Cosatu's view that SA needs a growing economy "based on labour-intensive industry". Soon after that, he quoted Business Leadership SA CEO Michael Spicer, who had written that government, business, labour and civil society need to agree "on a vision of doubling the size of the economy within a generation."
When it came to the nuts and bolts, however, it was clear that Gordhan has carried on where his lauded predecessor, Trevor Manuel, left off. There was nothing to comfort the ANC's allies on the Left, Cosatu and the SA Communist Party - or, for that matter, big spenders and social engineers in the ANC and maverick elements such as the ANC Youth League. Several controversial issues that had been swirling about - and which Gordhan had previously said were up for debate - were firmly dealt with. He made it clear that the 3%-6% target band for inflation will stay - though modification would not have been a surprise - and that "managing inflation is crucial to reducing long-term borrowing costs and providing confidence (to) stimulate investment, employment and competitiveness".
There was equal bluntness on the currency, which some critics had argued should be pegged or manipulated: "We need a stable and competitive exchange rate, though in today's world this cannot be translated into a straightforward fixed price of the rand." No basis for negotiation there - or on the status of the Reserve Bank, which must continue "to pursue its mandate independently".
The ambitious national health insurance (NHI) scheme was in effect shot down. Increased spending on health, as a proportion of total spending, would certainly be needed to set up an NHI, and there is no provision for this in the next few years. In what was surely a new ideological marker, Gordhan signalled a closer public-private partnership on health - and said only that this would be a "prerequisite" for introducing an NHI, which keeps government's options open.
Unionists will not be savouring the minister's stern words on public-sector remuneration, where the wage bill has doubled in five years: "It will now be necessary to moderate salary increases."
Gordhan spoke of reforms "to increase inclusion and participation in the labour market" and there was a sardonic reference to the way "our bargaining arrangements push up entry-level wages". The free-marketeers in the Democratic Alliance could not have put it better.
There was something of the magician in the way Gordhan was able to announce a projected 2% annual growth in state spending for the next three years, despite a revenue shortfall of R69bn less than expected. It helps that growth is expected to be stronger than was thought last year.
The catch, of course, is that most of the money has to be found through borrowing. There will be greater expenditure on servicing the national debt, which is projected to rise from 23% of GDP last year to 40% in 2013. Though corporate and personal taxes were not raised, Gordhan warned of this next time - and he did add to the tax burden with new levies on fuel and emissions.
Beyond the sweetness and light of Gordhan's debut, there are some looming problems. The elephant in the room was Eskom, which got just one sentence - an astonishing omission, given both its gargantuan funding requirements (still not addressed) and its potential (through power cuts and failures) to undermine the economic growth that Gordhan's spending plans take for granted. Given treasury's grip on everything else, we can only conclude that government just doesn't know what to do about Eskom.
Despite the encouraging noises on labour flexibility, the announced solution - a wage subsidy to encourage businesses to take on more entry-level employees - is absolutely the wrong way to go. It suggests that the underlying structural obstacles to job creation are not going to be seriously addressed by this administration. That would be an error with the potential to destroy all the other value in the budget.
There is also uncharted territory. For the first time, parliament can challenge and even change the budget. Gordhan pointedly reminded MPs that their new power must be balanced with "the need for policy certainty and continuity". Nobody can be sure how this process will work - but it will surely be a useful test of Gordhan's true political skill. If ANC MPs are directed to support this budget, perhaps after some token debate, we will know that the critical mass of the party is behind Gordhan. If not - well, the alternative (as another SA leader said in another context) is too ghastly to contemplate.
Ranking the Analysts 2009
