Today Pravin Gordhan presents his (and Jacob Zuma’s) first Medium Term Budget Policy Statement.
The post-Polokwane guillotine has been working overtime off late and we have seen the last remnants of the Ancien Régime flushed from the party, the state and government. The last man standing is Trevor Manuel, balancing precariously on a rapidly shrinking toe-hold.
Today we learn what Polokwane is going to mean for government plans to spend and raise money – which is often the most important thing that a government of the modern age can do.
The Great Recession combined with the extensive social commitments of Zuma’s backers means money is going to be in short supply – the Polokwane victors will have to find more (through taxation or borrowing) or they are going to have to cut their spending plans.
I think these are the questions that will reveal most about where our new government is leading us:
What level of budget deficit will Pravin Gordhan be prepared to run?
What level of tax increase does he (and our president and our president’s allies) estimate is bearable in the South African context?
Will Pravin give in to Cosatu/SACP’s plans for limitless support of loss making state enterprises?
Will Pravin Gordhan support expenditure of public-sector wage increases – to the degree that the trade union ally wants?
Will he find money for the unexpected increase in the A400M Airbus?
Will infrastructure continue to drive the economy and to what degree does the Polokwane victory for increasing the child grant to 18 year olds represent a shift in priorities?
In general, how much money can become available for social programmes?
It really is crunch time. I imagine many investors and business men and women have suspended judgement of the new management of the party and the state but have been increasingly concerned about how specific voices have come to dominate all public discourse. Let’s call these Vavi’s voice, Nzimande’s voice and Malema’s voice.
Investors are not as easily spooked by political bombast as you may imagine. They tend to wait to see whether government puts our money where its mouth is first – remembering that this government and these politicians increasingly have a ‘potty mouth’ as Americans endearingly say.
Today financial markets will see for the first time into which mouth government will put our money. The conclusion investors in financial markets reach – which will ultimately be reflected in capital flows that aggregate their buying and selling decision – will be the Polokwane chickens coming home to roost.
Nic Borain 