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Last week we had a leaked audio conversation between head of SARS Edward Kieswetter and Minister of Finance Enoch Godongwana, which received a bit of attention for the usual soap-opera drama the public seems to like - they were in disagreement about basic policy, Godongwana showed Kieswetter little respect, and neither did the rest of the ANC members present in the room.

The expert analysis provided in the above-linked article is interesting as a summary of what most have known for years now - that the tax base has been squeezed to its limit, and that it is now no longer possible to raise taxes and still receive additional revenue. The vastly asymmetric distribution of tax revenue means that people would simply find it easier to offshore their money or dodge SARS than pay taxes, and in combination with the reduction in economic activity, the maths apparently says that for every 1% increase in the income tax rate, we would see a 0.4% reduction in revenue.

Blood from a stone.

But for me, the biggest takeaway is the fact that the 2% VAT hike was meaningless - as Kieswetter said, it would not be enough to affect the bottom line - we have to make cuts.

Now of course, a 2% VAT hike would be bad for ordinary South Africans, making the cost of living that much higher. But the relative insignificance of that 2% hike to the overall fiscal situation means that the DA’s decision to block the budget was merely a symbolic flex.

Budgets need to be passed or the taps are shut off. The DA, I would be willing to bet, does not have the stomach for this, as it would mean the end of welfare for over half the population, no more salaries for civil servants, and consequently widespread violent unrest, for which they would be blamed.

If they hold too firm, the ANC has other partners it can turn to for support in Parliament. Those people would demand a cut for their allies in the civil service and in public procurement, and likely enlarge the budget.  

As it stands, this driepoot patronage system - welfare, public jobs, tenders - is what is holding the whole rickety ship together. Political stability relies on the steady flow of cash to key supporters. Ramaphosa himself won on a wave of foreign cash used to bribe ANC branches.

But the need for cuts has been repeated by a great deal of observers. Many tout the idea that we could just sell off the SOEs, but many are pretty much bankrupt, which means purchasers would simply be relieving us of toxic debt and stripping the assets. This wouldn’t fix Eskom, which is unfortunately necessary to the ordinary running of the economy.

This would stop bleeding the fiscus somewhat, but as Dawie Roodt has said, SOEs and municipal government debt is not calculated into the national debt figure (75% of GDP). In a recent interview on BizNews, Roodt explained that putting these two national debt categories onto the balance sheet pushes the 75% figure up to about 95%.

Now, That means we sit at a very high risk of public debt default. A state can default on its debt in two ways - directly (by simply not paying) or indirectly, by printing the debt away.

The second of these may be painful (a loaf of bread at R50, and chronic double-digit inflation), but it would not be the literal end of the world if all our debt was rand-denominated. But it would definitely mean the end of rand denominated loans. The IMF has already insisted on recent bailouts being denominated in dollars and Special Drawing Rights (the global reserve currency used by central banks).

This means that the gravy train would have to end soon, and hard - total stopping of most welfare, firing something like a third of the civil service and cutting all salaries. But this is politically impossible Everyone says we need a “Department of Goevrnment Efficiency” like in the US, but this is ignoring the realities on the ground. The US is a disciplined organism, corrupt to be sure, but constrained by the immutable strength of the letter of law. The South African state is still run by the ANC, and the ANC is not a dictatorship, it is a college of criminal organisations that must all be appeased, and there is no alternative elite to slot in.

Political instability and failure to appease the right people has resulted in two presidents being kicked out of their offices before their terms were done, and there is no reason it couldn’t happen again.

The more lasting trouble is the other attendant political and economic issues. We have a skills shortage, a brain drain, rapid deindustrialisation, collapsing utilities, a large unregulated informal sector, and tax enforcement problems (they have a case processing bottleneck which cannot handle large scale noncompliance or appeals).

Kieswetter is doing his best to shore his end up, and he’s right, that is probably the best use of his time - depoliticising the department and beefing up revenue collection capacity. But the successes of this will be a marginal and short-term solution.

The punchline here is that we simply cannot turn the ship around - the DA has won a symbolic victory, but it will not fix anything, and they do not have the clout or the stomach to make these changes, and the ANC would not garner the support for it. They should not be patting themselves on the back for this.

Our dire situation is evidenced by the race for the finish line in land expropriation. The cluster of bills being passed under Ramaphosa aims for the dispossession of most farms, most urban land, and without anything resembling due process as we know it. Most like to focus on an extremely charitable reading of only one of these bills, but the fact is there are a number of interlocking pieces of legislation that ultimately afford near-plenary power to the state to expropriate as they please with minimal legal consequences.

The comparison with Zimbabwe is common, but the key fact people miss is that Zimbabwe never legally authorised expropriation without compensation. They simply made expropriation compulsory in 1992, didn’t budget for the cost, and then ran out of money to compensate farmers, and let land grabs proceed undeterred.

When the state runs out of money, it must find other ways of compensating patronage networks, and land is the first and last currency of any settled society.

Eventually they just stopped bothering with due process, and gave in to the raw logic of power.

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