Unprepared and unplanned: Ramaphosa is the real villain of Budget debacle

Imagine a democratic country where members of the governing party called each other “Comrade”; where its Cabinet members were split between democratic centrists and socialist ideologues.

Its high-spending government presided over a low-growth, high-unemployment economy, and it faced headwinds from being over-borrowed in a weakening currency and from external foreign shocks over which it had minimal control.

The governing party was also in hock to the very powerful trade union movement in the country, which operated as a brake on government reform initiatives. This reads like a facsimile of today’s South Africa, one week after last Wednesday’s Budget speech debacle. And in headline form it is.

However, the opening paragraphs are a description of Britain in September 1976, when the Labour Party government faced one of the severest economic crises since 1945: its economy in the words of The Economist was “bust”: Sterling was plunging, public expenditure was soaring and ‘there was a lack of international confidence in government policy… suggesting either a siege economy or default of both’ were on the cards to quote a report of that era.

Striking parallels

There were two solutions the beleaguered government enacted. First, its Chancellor, Denis Healey, went cap in hand to the International Monetary Fund (IMF) for a record $3.9-billion loan which was given with stringent conditions attached.

Second, while Healey was forced by this exigency to skip his party’s annual political conference, it was left to Labour Prime Minister James Callaghan to level directly with his party on the implications of his country’s predicament caused in large measure by his own party policies and also by the external shock of the Opec oil price surge after the 1973 Yom Kippur War.

Callaghan, who enjoyed the nickname “Sunny Jim” did not spare the ‘comrades’ as he called Labour Party members the harsh truth in his seminal address to the conference. He told the “comrades”: “We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government expenditure. I tell you in all candour that that option no longer exists…”

He went on to warn his party: “You know we have not been creating wealth as fast as we have been distributing it. Over the last three years, our domestic production has risen by 2%, and the increase in government expenditure has increased by 18%. We have made the shift to meet this, yes, by higher taxation at some points, borrowing from abroad and, worst of all, by printing money. Now we have to get back in balance again.”

Obviously, SA in 2025 is not Britain of 1976, then described as “the sick man of Europe” – having by referendum just affirmed its membership of the European Economic Community. But there are some striking parallels.

Indeed, Britain’s subpar growth then was higher than even the most optimistic assumptions (1.8%) our own National Treasury has made of our economic growth prospects. We mercifully do not print money to fund expenditure since we have an independent Reserve Bank, a situation only achieved in Britain when Callaghan’s successor as Labour Prime Minister, Tony Blair, made the Bank of England independent of government in 1997.

Management skills lacking

And for all his straight talk and harsh truths, Callaghan lost power three years after his speech when the trades unions, critical partners of Labour, severed the social compact which Labour enacted to meet the stringent demands of the IMF. It would take the premiership of Margaret Thatcher to initiate the economic reforms which Callaghan’s speech first suggested were needed to change Britain’s downward spiral.

South Africa does not, even at this critical stage, low in growth, high in taxes, endless in spending claims and desperately over borrowed, have a leader who is willing to spell out the consequences of the dire conditions which continued replication of failed policies has placed it. It does not even have a president who can muster the management skills to introduce a budget on schedule on which his multi-party Cabinet can agree.

Indeed, last week’s (non) budget fiasco – still one week later without resolution – shines a harsh light on how the complexities of a collation government are managed, or in this case, not managed at all.

It is remarkable that finance minister Enoch Godongwana, who was one of the cheerleaders for including the Democratic Alliance in the government of national unity (GNU), thought he did not need the buy-in of his governing partner for his controversial VAT tax hike.

Or his assumption that the new government simply replicated the amplifiers of the previous one-party Cabinet. And did not in fact now contain buffers against unbridled hubris where ministerial diktat ruled unchecked. However, while the ANC was content to allow Godongwana to be hung out to dry in public last Wednesday, and then in private to furiously brief against him to the media, the real villain of the piece is Cyril Ramaphosa.

Review needed of spending programmes

He oversees the Cabinet, he suggests its line of sight and direction of travel, he is the self-described “great deal maker” (as he modestly suggested to Donald Trump). And he had known for at least four or five months the date (19 February 2025) of the budget speech and presumably the buy-in, or its lack, of all the partners in his government for the budget contours. What did he do and when did he do it, are two questions which suggest, in the light of the budget debacle, their own answers.

He was missing in action in the run-up to last week, and the fact that, like the firm Lastminute.com, the final Budget numbers were only presented to the Cabinet two hours before the Budget was to be broadcast suggests something seriously amiss in the management of government itself.

Any suggestions that Ramaphosa will “do a Thatcher” and introduce vast and necessary reforms into government and the economy are obviously inapplicable. But he could take a leaf or two from his fellow socialist, the late Jim Callaghan and level with both his government and people “in candour” that the old ways, tax and spend, and borrowing your way to prosperity are off the table, as “options that no longer exist”. But that admission only came after an IMF bailout, precisely where an unreformed SA could land up. That would be a start.

Next, in the few weeks until the new budget is presented, he should initiate a thorough review of public spending and current programmes. Ann Bernstein of the Centre for Development and Enterprise (CDE) published a cogent review of the failure and real costs to the economy of the Department of Small Business Development. It should be scrapped and the resources allocated to it need to be placed in the hands of the small business entrepreneurs who know how to start and run businesses.

Open for business?

Ramaphosa could start a process which leads to the reduction and reform of whole government departments and state companies. He could lead from the front and save the fiscus the costs of endless bailouts and impaired balance sheet repairs. There is a long list and there are many proposals.

Ramaphosa should candidly explain that we are redistributing wealth faster than we are creating it, and a suggested “wealth tax” on the barely 242 000 South Africans who pay 25% of all personal income taxes is not sustainable, and the milch cow will soon enough run dry or seek pastures overseas. He could indeed use his favourite phrase these days’ whether you like it or not’ and apply it to his own government and ministers.

Tell them to eliminate waste, corruption in procurement, initiate a moratorium on BEE preferences and cut down massively on vanity advertising and overseas travel. And finally implement real consequence management for these achievements.

Most of all he needs to signal – as Callaghan once did – that the demand side of public spending needs to tamp down and the supply side of growth and reform is the real sign “that we are open for business” – another CR fave phrase. And the business of government is not the government of business. Whether Health Minister Aaron Motsoeledi “likes it or not”.

Well, we can all hope, at least, and hope is not (yet) taxable!