While there has been a clear effort by the National Treasury to rein in spending and turn the trajectory of government's financial performance around, the revenue side of the equation has not been able to deliver enough money to fully restore government finances, and this will be a key indicator that must be addressed in the Budget Speech, said business organisation Business Leadership South Africa (BLSA) CEO Busi Mavuso on February 19.

With revenue under pressure, the time at which revenue will exceed expenses before interest payments - a primary surplus - has consistently drifted outward, while gross debt as a percentage of gross domestic product (GDP) has continued moving upward.

"South Africa was meant to achieve a primary surplus during the current year, but there are doubts this will be achieved. If it does not, eyes will turn to whether it can do so in the year ahead, requiring clear spending discipline," she said in her latest weekly newsletter.

"Finance Minister Enoch Godongwana must make the case that Treasury will succeed, despite the myriad spending pressures it faces, especially in an election year."

Additionally, if the decision is made to use the country’s foreign reserves to help relieve pressure on government finances, it must be with strict and credible conditions that make clear that the function of foreign reserves is to protect the country from international crises and maintain its credibility in the international financial system.

"It is not a free money pot for government bailouts," Mavuso emphasised.

Further, another important issue that must be addressed is government’s efforts to drive infrastructure investment.

"We have for many years heard a lot about it, but it still is not happening. Public spending in particular has continued to decline throughout the period, while the private sector has been picking up the slack. This is largely a result of the financial collapse of [State-owned] Eskom and Transnet, but core public sector investment has also been weak.

"Therefore, while spending needs to be constrained, if we want to turn the trajectory of overall GDP growth, it is important that we invest in our economic capacity and ensure the State can provide essential services like water and roads," she said.

Meanwhile, Treasury had been working on reforming the regulations for public-private partnerships (PPPs) to make them easier to use. This process had been going on for some time, and it would be good to see clear announcements of changes to the regulations in the Budget, Mavuso said.

This would enable the private sector to become much more active in investing in public infrastructure, without putting government finances under strain.

The budget may also touch on the Infrastructure Finance and Implementation Support Agency that was announced in the Medium-Term Budget Policy Statement (MTBPS), but with little detail. This may be a positive intervention to promote better use of PPPs, she added.

Additionally, part of resolving Eskom’s crisis is the effort to deal with debt owed to it by municipalities. National Treasury has been running a debt forgiveness programme with municipalities. The MTBPS in November said that municipalities representing 97% of the municipal debt owed to the utility had applied for debt relief.

"The programme is important for Eskom’s sustainability, as well as improving the fiscal management of the municipalities. Relief comes with a set of conditions that are aimed at improving the financial resilience of municipalities and their ability to generate revenue, as well as building a culture of payment for services. I hope we will hear of the progress in getting municipalities to stick with the programme," Mavuso said.

However, the financial predicament of Transnet and Eskom continued to be a serious issue for their performance, she highlighted.

"We have seen a great deal of public money put into them, as well as other State-owned entities, but their performance continues to be weak.

"Therefore, I do not expect Treasury to write any blank cheques for either, despite the importance of restoring their financial health. We need clear conditionality, namely requiring the two State behemoths to deliver on reforms before new funding is made available to them.

"We cannot afford to see more public money going into them without credible reforms. We have a plan on how the logistics crisis should be dealt with in the form of the Transnet roadmap that has been approved by Cabinet and made public earlier this month."

It was a good plan, but Transnet needed to be fully committed to its implementation, which also meant confirming the urgent appointment of its executive team. This should be a condition of any Transnet funding, she said.

Business was doing its part in resolving the logistics crisis. It had raised R120-million to help fund interventions by the National Logistics Crisis Committee, she averred.

"We are ready to work with government and Transnet to do what is needed, and are backing the reform effort with skills and resources. National Treasury can aid this effort as a key partner in resolving the logistics crisis," Mavuso highlighted.

Further, increasing taxes may seem to be one way to restore government finances, but the evidence is that behavioural shifts in response to higher tax rates undermine collections. The only tax that can be reliably increased to raise additional revenue is value-added tax, which is a regressive tax that affects the poor the most and this is unlikely to happen in an election year.

"It is important to temper expectations of what the Budget can do. Gone are the days when National Treasury simultaneously held the levers of key policy interventions to support growth, as well as the levers of government spending. The economy now depends on many parts of the State machinery pulling together, with Treasury only able to hold the purse strings.

"It is broader economic policy that is the ultimate way out of the low growth mess we are in, although sound fiscal management is a critical part," she said.