South Africa’s fiscal crisis exaggerated to cover up corruption and mismanagement – professor

Wits University’s Professor Alex van den Heever said South Africa’s fiscal crisis has likely been exaggerated, and austerity measures serve to cover up government corruption and mismanagement.

South Africa’s budget deficit widened further in August and September compared to a year ago as government expenditure continues to grow faster than revenue. 

The main budget deficit was R47.3 billion. It increased to R63.3 billion, including Eskom debt relief in August 2023. This is up from a deficit of R42.7 billion in August 2022.

The provisional financing data from the National Treasury for September 2023 also points to a widening budget deficit. The main budget deficit is expected to be R12.8 billion, compared to R3.3 billion in September 2022.

The Treasury said total revenue growth was 8.7% year-on-year in August, while total expenditure grew at a stronger pace of 9.2%.

Finance Minister Enoch Godongwana has said he is very concerned about the financial situation and has consulted with the government about the issue.

The National Treasury proposed drastic steps to rein in spending as the government has run out of money and faces a debt trap.

The measures include a freeze on new public service jobs, stopping procurement contracts for all infrastructure projects, and keeping public servant salary increases in check.

However, Van den Heever told eNCA that while fiscal discipline is very important, it is also crucial to look at the causes of any shortfalls in government revenue. 

“There’s a risk that an austerity approach at this point – when the government has failed to address the underlying causes for revenue shortfalls and the wastage of government expenditures – results in reinforcing, supporting, and accepting corruption in the state,” he said.

He explained that cutting public services as a way of mitigating the consequences of fiscal mismanagement means that the poor in South Africa end up paying for the government’s corruption and failures. 

“Austerity measures cannot just be willy-nilly introduced when there are myriad alternatives that could be considered – alternatives that are actually quite critical,” he said.

Van den Heever said there is a possibility that the current fiscal crisis is being exaggerated because there are tugs of war within the government about priorities. 

“A sense of fiscal crisis or a lack of government revenue is being used as an excuse as part of that discussion,” he said.

“The underlying issue is that South Africa’s government revenue should be in a lot better position than it is.” 

“Some of the factors are cyclical, and some are self-induced. This is where we essentially need to look as well. A large part of our drop in government revenue is because of an economic downturn caused by mismanagement at Eskom and at Transnet.”

This mismanagement needs to be investigated, along with issues like allowing a massive illicit cigarette industry to operate within the country. 

The illicit cigarette trade cost the country more than R20 billion in tax revenue last year.

“This is linked to political actors who are possibly being protected as well. We can see a drop in government revenue if we are essentially supporting corruption that undermines both economic stability and our actual sources of revenue through excise taxes,” Van den Heever said.

He added that politicians and people linked to them are being protected through the way in which South Africa runs its macro finances. 

There are people in government that “they don’t want to touch, and so we end up cutting services to the poor”. 

“Even before we get to wealth taxes or anything along those lines, the important issue would be to actually sort out the stuff we can sort out, which means facing up to many of the politically important actors who are basically ripping off the state,” he said. 

“If that is done, South Africa’s financial and economic position would be extremely strong.”

“If the current government is not prepared to face up and deal with this situation courageously and seeks to cut services and support to the poor as a way of dealing with this wastage, then they need to go.”