• Market Watch

Godongwana optimistic and ready to do battle

• 4 Months Ago - 2024-07-23 00:00:00

South African finance minister Enoch Godongwana steps into his second term, confident but choosing his battles.
As he contemplates his to-do list from his third-floor office at parliament, he looks at the array of issues: dozens of new spending requests, an expanding agenda of reform items – now including the headache of local government financing – pressure from the SA Reserve Bank governor to lower the inflation target, the neglected area of governance and oversight of SARS, and a reputational problem brewing at the Government Employees' Pensions Fund (GEPF), where the chairperson Dondo Mogajane is facing questions over his probity.
"I don't want to open battles on all fronts," he says. "Fiscal consolidation on its own is a major battle and I can't fight too many others at this time."
Godongwana's ambling and slow demeanour have caused some who don’t know him to underestimate his weight as finance minister. But look past that and you will find a clarity of thought, pragmatism, and decisiveness that is rare among ANC politicians.
After a decade as ANC head of economic transformation and a past as Eastern Cape trade union leader and ANC provincial finance minister going back to the 1980s, Godongwana also has substantial political heft.
He has already impressed markets with his determination to stick to fiscal targets to reign in debt and burgeoning debt service costs. This has meant deep spending cuts, even in an election year.

New spending demands
In the wake of the election, new spending demands have arrived at Treasury's budget office. Both the ANC election campaign and the government of national unity (GNU) in its first lekgotla have pledged several costly programmes.
But don’t hold your breath that any of this will happen soon. All have substantial fiscal implications. Several—like VAT and the fuel price—have been closely analysed by the Treasury quite recently and found not to be affordable under current circumstances.
Godongwana remains committed to fiscal restraints, and his reply to new fiscal demands after the election and the opening of Parliament is exactly what it was before. "The fiscal envelope is not growing. New priorities will have to be funded by reprioritisation or new sources of revenue."
He also plans to up the ante: The IMF's (and the DA's) suggestion that the Treasury adopt a fiscal rule that would legislate a debt ceiling is a key element of the Treasury's five-year plan.
It is also important to remember that the two new items added by the GNU after its lekgotla – the expansion of the VAT-exempt food basket and the reduction of the fuel price – also have large fiscal implications. The Treasury recently investigated both and found neither to be possible at this time.

Treasury silent on NHI
On the NHI – which the Treasury and the Department of Health (DoH) have wrestled over for years – Godongwana is diplomatically quiet. It is interesting to note, though, that Treasury has yet to file an answering affidavit in the litigation over the NHI that is before the courts. It does not look likely to do so, either.
This is because, among the bundles and annexures in the applicants' court papers, somebody dug out a letter written by the Treasury to the DoH in 2018 pointing out that the NHI as proposed was not constitutional. As these concerns were never addressed, a defence of the NHI Act by the Treasury in court would not look plausible.
Recent intimations by Ramaphosa and DA leader John Steenhuisen that a compromise will be found on the NHI that ends litigation and leaves everyone happy also seem to suggest that the Treasury won't need to wade into the NHI debate. It is a battle that can be left to others.

Tax governance reform
In his budget vote speech last week, Godongwana made some new announcements. The first was that he would reform the governance of the SA Revenue Service (SARS) to enable better oversight and transparency.
"It's too early to outline the elements, but we do want to bring amendments to the Tax Act. First, we must give content to the Nugent Commission's report. We will also look at the key issues people raise about transparency, particularly tech transparency. For now, we've not gone into the details of that."
Ramaphosa established the Nugent Commission in 2018 to investigate how state capture had occurred at the entity under the leadership of former commissioner Tom Moyane. Nugent found that governance at SARS had been made possible by weaknesses in the governing legislation. He recommended either the creation of an inspector-general or a board to exercise oversight.
"My preference is for a board. An inspector-general does not have immediate oversight, whereas a board has immediate oversight. Moyane was able to do what he did because there was no direct oversight," he says.
Former president Jacob Zuma also changed the appointing authority for the commissioner from the finance minister to the president. Godongwana says he does not envisage changing that back again, as that was one of the better things Zuma did.
With the succession of Edward Kieswetter now an issue, SARS has reintroduced deputy commissioner positions.
"If there is a need to put that into law, we will do it."

Accelerated reform
Together with Ramaphosa, Godongwana has been a strong advocate of Operation Vulindlela's (OV) microeconomic reform programme and strongly supports the introduction of liberalised and competitive markets in old state monopolies. He says momentum reform will get a boost under the GNU as "the DA guys are pretty keen on it."
In his budget vote speech, Godongwana suggested new institutional arrangements to facilitate private investment in water and transport infrastructure. A key objective is to "unencumber infrastructure financing from the traditional mechanisms used to fund the budget."
He proposes establishing structures similar to the Independent Power Producers (IPP) Office, which led to the procurement of renewable energy.
The value of this approach is that departmental officials do not run the procurement process, and officials in the IPP Office have quasi-autonomy.

Local government
In the past, the ANC has been reluctant to concede that the crisis in local government lies in its design and will not be solved without systemic reform. Godongwana has put his new deputy, the DA's Ashor Sarupen, on to the job of local government reform, handing him the large departmental portfolio of intergovernmental relations.
"He's got some interest in reforming that sector. He requested that he be given it."
Godongwana has piled responsibilities high on the somewhat surprised Sarupen. In addition to intergovernmental relations, he will oversee corporate services for the department and manage the 17 agencies under the Treasury—like the Independent Regulatory Board for Auditors, the Accounting Standards Board, the Fiscal and Finance Commission, and the Tax Ombudsman.
He will also be responsible for SA's relationships with regional and international bodies – the IMF, World Bank, and New Development Bank (NDB) – and with the SADC and Commonwealth finance ministers.
Of all the looming battles, there are two that Godongwana says he is not ready to talk about.
Last week, it emerged that Mogajane – who was appointed by Godongwana to chair the GEPF – was implicated in bribery related to the VBS scandal. In a witness statement by the bank's former chairperson Tshifhiwa Matodzi, Mogajane allegedly asked for R1 million to withdraw a Treasury instruction to municipalities that depositing money with VBS was illegal.
While the circular was never withdrawn, new questions have emerged about Mogajane – who opted to work for a businessman with a shady reputation after he left the Treasury. Godongwana says he is waiting for Mogajane to return from his travels outside the country so that the two can meet face-to-face to discuss it.

Inflation target a work in a progress
The second is the question of the inflation target. Since it was introduced 24 years ago, the target band – which is set by the Treasury in consultation with the SARB – has stayed between 3% and 6%. Governor Lesetja Kganyago and several deputy governors have begun to talk publicly about their wish that it be lower.
Godongwana says the bank's proposal is under discussion at the Macro Standing Committee, a joint committee between the two institutions. However, he says it would be unwise to make any assumptions about what this might mean.
Monetary policy, and more specifically, Kganyago's hawkish stance, has made things difficult for the moderates in the ANC. Evidence mounts that the 15-year high for interest rates is dragging down GDP growth. Lowering the target band right now is not a discussion the public would welcome, as it waits in the hope that the first cut will come soon.
It is also not a discussion Godongwana says he will publicly join out of concern that expectations might be raised either way.
It would also open a new battlefront, and Godongwana has enough of those right now.
-NEWS24