One of the most extraordinary aspects of Budget 2025 was how little work Treasury had done on the expenditure side of the Budget. Finance Minister Enoch Godongwana has promised that there will be a spending review, but doesn’t say by when, and clearly spending cuts were not a feature of the delayed Budget this year, or any previous year.
Yet, spending cuts are back on the agenda because there is a good chance that the GNU-fettered ANC won’t be able to pass its Budget without some sort of examination of the expenditure side of the Budget.
So, where should cuts be made? Honestly, there are so many possibilities, that it’s hard to enumerate them all. But here are a few areas that could be examined quickly and easily.
The first was raised by PwC’s local tax policy lead Kyle Mandy, who targets the SA Customs Union (Sacu) agreement. The whole notion of the customs union was for SA to compensate its neighbours for being part of a free trade bloc. For years, this made some sort of sense but, gradually, the payments have been increasing more and more, so now the agreement is totally out of kilter with the economic realities on the ground.
SA disburses about R90-billion a year to its Sacu partners, theoretically to mitigate the impact of its disproportionate exports to these nations, which tops R200-billion a year, Mandy said at an event hosted by PwC on Friday reported by News24.
“This country is in a fiscal crisis; we cannot get away from that. We need to be taking all the steps that we should be taking to address that fiscal crisis, including reconsidering these sorts of arrangements that cost the country a fortune for questionable benefits,” he said.
Mandy didn’t say so, but the problem is SA’s manufacturing has declined to such an extent that the notional manufacturing dominance of SA is now more or less fictitious. The Sacu agreement was instituted partly to help our poor neighbours reach the kind of industrial prowess of SA.
But both Namibia and Botswana have, in the meantime, outperformed SA to such an extent that SA helping them is a bit of a joke – they should be helping out their poor southern neighbours! The average Batswana is now 30% richer than the average South African; shows what happens if you have an honest, responsible government for decades. In purchasing power parity terms, Namibians are richer too. There is a good argument to be made that Lesotho should continue to be supported – the Sacu payments make up about 60% of the country’s budget – but generally speaking, this is clearly a huge cash transfer that is way past its sell-by date.
The second area that needs attention is a suggestion by my former colleague Carol Paton, who commented in her column on News24 that there has been a proliferation of agencies and institutions across the state. In 2023, Treasury initiated a review of the state’s agencies, which by then had grown to 148, all receiving transfers from the fiscus. “Many of these should be reabsorbed into their government departments, which would bring savings on operational costs, executives and boards. Executive salaries in some of them are ridiculously high. While a director-general of a government department earns around R2-million a year, agency executives can do three times better, some with salaries exceeding R6-million.”
The other “low-hanging fruit” would be the National Skills Levy, which is a 1% tax on payroll for all businesses above a certain threshold. The tax funds the Sector Education and Training Authorities (Setas) with R20-billion a year and the National Skills Fund (NSF), also supported by the levy, has a budget of R4.9-billion.
Setas have been operating for decades now and many are blatantly corrupted. Just last week, Parliament’s Portfolio Committee on Higher Education ripped into the NSF, which underspent by R3.7-billion in 2023/24, saying it saw no hope that the fund could turn itself around.
To this list, I would add the Road Accident Fund (RAF), which started off as a great idea, but has turned into an absolute nightmare of maladministration and fraud. The fund is now in effect bankrupt, it routinely ignores court orders, it’s been seriously underfunded for years and its problems – some of which are actually not of its own making (but many are) – are being ignored by the Department of Transport. It’s a problem too big for the department to deal with, partly because its funding is drawn from a fuel levy and the government hates the idea of increasing its funding – that will necessarily involve increasing the fuel price, which is politically sensitive.
But the fund still gets around R50-billion a year, an enormous amount of money. SA could return to a private system, which is what most countries have and, in the best of all possible worlds, much of this expenditure would be saved. Simple to say, I know. Just for one thing, the RAF has been so badly run, and so little government action has been taken up till now, that its outstanding payments to road accident victims is probably around R450-million. But with a little ingenuity and real expertise, there is no reason in my mind why that could not be managed. What is critical is that the blood flow must be staunched with enormous urgency, and that requires new, professional management and legislative intervention.
These may not be the best ideas, and there are no doubt many more. But the crucial issue is that somehow SA has to inculcate the idea into the seemingly impenetrable heads of the SA ruling class that the population of South Africa is just sick of their cavalier approach to wasting taxpayers’ money. There has to be a mindset change, and if the GNU is the agent of that change, so much the better. 💥
This post first appeared in the Daily Maverick here. To signup for Daily Maverick newsletters, click here.
Amabhungane
Join the conversation