SIMON BROWN: I’m chatting now with Gaba Tabane, director, government and public services industry leader at Deloitte. Gaba, I appreciate the early morning time. We of course had the State of the Nation Address (Sona) last night and we don’t usually get much budget news out of that. The president usually leaves that for his finance minister, although we did get hard-and-fast on the … Covid grant – extending that for another year – which I suppose takes some uncertainty out of the budget in just 12 days’ time?
GABA TABANE: Good morning, Simon. Yes, it was good to hear the president try to take the butterflies out of our bellies last night, just to give us a glimpse of what to expect when the minister of finance gives the budget speech in a few days.
SIMON BROWN: It’s going to be a fairly chunky expense. I suppose in some sense, though – let’s assume it stays at R350 – the money goes back into the economy, it gets taxed. There’s going to be Vat, there’s going to be transport, which is the fuel levy and all of that. It certainly helps the poorest of the poor. Does it put additional strain on our budget? We’ve got rising debt, we’ve got concerns around that deficit already.
GABA TABANE: Simon, I’m going to say this – I know it’s tongue in cheek, but I’m going to say it anyway – what the State of the Nation sounded like yesterday is like you and I both want to drive a Ferrari, but we know we don’t have that money right now. I still maintain the state has very little room to wiggle.
The state has very little room to manoeuvre in terms of garnering all the resources required to achieve all the things that the president spoke about yesterday.
The strain is already on the budget in the sense that the public sector wage bill already accounts for 35% of the fiscus. Then you have the social grants accounting for about 14%. We are already at almost half of the budget in terms of the commitments that we have which the state can really never get out of. And yet there are so many promises.
The saving grace for me is the crowding in of private-sector investment which the president spoke about, and recognition that jobs are created by the private sector and not the public sector, and that the public sector’s role is to make the conditions conducive for business to flourish so that jobs can be created.
SIMON BROWN: Yeah. I take your point a hundred percent. It was a great speech from the president, but it was a lot of a wish list. Yeah, I wish for a Ferrari but I’m not getting one any time soon.
Let’s stay with that public-sector wage bill. As you say, 35%. The plan they’re looking to roll out looks good. A pension increase of 1.5%, but there’s still uncertainty, as I understand, about the 2018 wage-bill agreement. If that goes against government, that’s going to put significant strain on it.
GABA TABANE: It’s definitely going to put significant strain on the budget if the 2018 commitments have to be met by the state to the unions. Now, we all know how big a role the unions play in the relationship with the ANC and consequently the government, so it is not easy to get out of those commitments on the side of government. I still insist there isn’t any room to wiggle, especially if these realities have to kick in.
SIMON BROWN: The revenue windfall that we are seeing from mining kicked in last year. It stayed around reports of R150 billion. I’ve heard some optimism of perhaps up to R200 billion. Obviously this is short term. It might come again next year, maybe even the year after. It’s not a long-term solution, but does that markedly help? Can that make a big difference, perhaps in tax increases, perhaps to avoid Vat increases as a result?
GABA TABANE: I would say do not use the windfall to deal with the baggage. Rather use the windfall to do the new things. We have been grappling with the Covid-19 pandemic. A lot of expenditure has gone to the Covid-19-related relief programmes.
We haven’t done enough in dealing with the problems that the country has been grappling with historically in terms of ensuring that there is adequate expenditure in the healthcare sector on, for example, tuberculosis and the HIV/Aids pandemic. We have to go back to the previous heights of ensuring that we deal with these, because they are still realities that were just overshadowed by the Covid-19 pandemic.
Now, how do you then use the windfall for totally new things, or even for even more grants or more public-sector wage bill expenses, when you could be doing this for the actual requirements of the economy so that the economy can run?
SIMON BROWN: I like that. That’s a great point. Do new things. Let’s not to focus on the past. State-owned companies – the president mentioned a lot about them last night. Obviously the Zondo reports are coming out; we get a sense of that. They still remain. They must remain almost our largest risk. Yes, we’ve got the public-sector wage bill at 35%, we’ve got grants at 14% of budget, but state-owned companies remain a significant threat to Treasury.
GABA TABANE: Yes. We actually expect the state-owned entities to be running at a profit, as opposed to be taking away from the fiscus, but we all know that it’s not happening. SAA is not doing that, and so on. Denel is not doing that. So it’s a big concern. And the question is, what sort of relief should the government be giving state-owned enterprises? Should it be all financial relief?
I say no, government should be looking at what non-financial support to give SOEs in terms of capacity and competency development, so that they can achieve the mandates for which they were set up. Their taking from the fiscus should no longer be even a possibility because they have a responsibility to run profitably and deliver the services for which they were created. But we know that it’s not happening. So the big issue is how we get the right people at SOEs to execute the mandate that the SOEs were set up for?
SIMON BROWN: Yeah. You say run at a profit. As you said that it suddenly occurred to me that there are two purposes for an SOE; one is to provide that service to the citizens of the country, the other is to provide revenue. And of course they haven’t done that in a very long time. It is perhaps a lot more about skills rather than actually about revenue.
We’ll leave it there. Gaba Tabane, director, government and public services industry leader at Deloitte, I appreciate the insights this early morning.