Last chance budget to get green flag

Finance minister Enoch Godongwana’s budget 3.0 — believed to include state spending cuts of about R60bn — has the unanimous support of the government of national unity (GNU) and will sail through parliament on Wednesday.

Sources in the government, the DA and other parties in the GNU told the Sunday Times the latest version of the budget will contain no surprises and had got the nod from all involved.

The cabinet gave its approval four days ago. Godongwana had earlier briefed the ANC top seven, led by President Cyril Ramaphosa.

The first budget in February was rejected by the DA and others due its proposed two percentage point increase in VAT, and the second version in March also failed because of a planned VAT hike, albeit a much smaller one.

The latest budget contains no VAT hike and the Sunday Times understands that to try to narrow the revenue shortfall Godongwana is likely to slash government expenditure — projected at R2.59-trillion in the first budget — by no less than R60bn.

This means funding for some critical projects will be cut while others will be delayed until after October when the adjustment budget is presented.

“Yes, the budget will have the support of all the parties. We have been substantively consulted. In any event, it’s not like there were many options left,” said a GNU insider.

It appears that everyone was happy with the level of consultation by Godongwana, an issue that was at the centre of the rejection of the previous two budgets.

“He started his consultations with the ANC, then went to the GNU, and then finally came to cabinet on Wednesday. Everyone is happy, we are all looking forward to [Wednesday] when he presents this budget,” said a cabinet minister.

Another insider said: “There’s happiness throughout. I don’t know how he came up with this, I don’t know how he made it [the budget] this good, but it just means it was doable from the start. He did his job.”

This source said Godongwana was “even working very well” with his DA deputy minister Ashor Sarupen.

A fourth source said the spending cuts might have an even worse effect on poor people than a VAT increase would have had and predicted there would be “long faces” in parliament.

“The amount of cuts or reductions is bigger than what VAT would have been had we left it,” this source said.

The trade-off was that instead of increasing VAT, “you will have to wait longer for your clinic, or you have to wait longer for us to fix this road, or you will have to wait for a train because we can’t put in all the signalling equipment”.

Godongwana’s first budget included an additional R232.6bn over the medium-term expenditure framework to address spending pressures.

One of the sources said the opposition to the VAT hikes meant Godongwana had no choice but to cut spending.

“So that’s what parties have been doing since February,” this source said. “In fact, what they said was ‘we’re not going to give you the means to spend an extra R232bn, we reject your proposal’. Then he came back in March with I think it was R179bn. 

“The parties said ‘we don’t want to give you R179bn’. So, he is coming back now, and he is saying from the March version we are going to have to cut another R75bn.”

Godongwana said last month scrapping the VAT hikes would result in a R75bn shortfall in his budget. To cover this, and in the absence of other revenue mechanisms, the minister is believed to have decided to slash  expenditure by at least R60bn.

“Well, let’s just say the tough choices finally have to be made,” one of the sources said, citing the International Monetary Fund’s decision last month to cut its projection for GDP growth in South Africa this year from 1.5% to just 1%.

“We can’t borrow more because revenue projections track GDP, so reducing the amount by which we add to the baseline [last October’s medium-term budget] is the only option,” the source said.