The big freeze

If actually implemented, this means come April, the government will no longer hire scores of personal assistants, clerks and others who gobble up large chunks of public money in salaries year after year.

Delivering what was arguably his most anticipated budget, totalling R1.5-trillion, in an economy he said was in crisis, Gordhan set the tone for what is likely to be a tough three years ahead.

“All we are saying in respect of the size of the salary bill is that it’s quite a significant part of the overall expenditure envelope that we work with,” he said at a media conference before his speech.

“So you have two pressures on the expenditure envelope and a significantly large wage bill and growing interest bill on our debt.”

Gordhan was under pressure from watchful ratings agencies to scale back on government excesses or risk having the country’s investment status reduced to junk.

Immediately after his speech, the currency began losing ground fast to the US dollar after having regained some territory since President Jacob Zuma precipitated a crisis by meddling with the finance ministry.

At 10 last night, the rand had recovered slightly to R15.62 to the dollar, a drop of 2.71%.

The weakness in the rand was seen as a response to the speech and an indication that globally, at least, Gordhan’s message lacked conviction and breadth.

Making matters worse, Brazil – South Africa’s partner in the Brics economic grouping – was classified as sub-investment grade by Moody’s yesterday, meaning the three main international agencies regard the South American giant as junk.

This will weigh on South Africa’s prospects as these tend to rise and fall with the fortunes of emerging markets, particularly Brazil.

Still, Gordhan made a go of it. On highly politicised state-owned enterprises, he said these were no longer “sacrosanct”.

He said the government was mulling over plans to merge, reconfigure or even close some of the poorer-performing ones.

Struggling national carrier SAA faces a merger with SA Express as Gordhan gave the strongest indication yet that the government was looking to take on a private investor to salvage the airline.

No provision is made for more guarantees for SAA, which is teetering on the brink of insolvency and in desperate need of cash.

Government guarantees to parastatals now total R467billion‚ or 11.5% of GDP.

“This is a source of pressure on the sovereign rating‚” Gordhan said in his speech.

Moody’s welcomed the planned public service cuts, but said the Treasury was still too optimistic about the growth of the economy.

“Treasury’s revised growth forecasts of 0.9% [this year] and 1.7% [next year] are still slightly more optimistic than Moody’s own predictions of 0.5% for 2016 and 1.5% for 2017,” it said.

Welcoming Gordhan’s speech, Nelson Mandela Bay Business Chamber chief executive Kevin Hustler was “pleased by the focus on cutting the bloated civil service”. He said: “We believe greater urgency is needed on stringent cost-containment measures across all departments of government.”

Bay businessman Khusta Jack, however, said the proposed cuts on public service jobs and other frills were too minimal to make a significant impact on the public purse.

“If they were serious, they would have spoken about trimming the salaries of any government official earning anything above R1-million,” Jack said at a post-budget debate yesterday.

Labour law analyst Tony Healy said unions would probably take to the streets over the planned freeze.

“But the highlighted positions to be frozen are probably not your normal trade union members,” Healy said.

“For example, the strategic adviser to the strategic adviser of the strategic adviser is not your traditional union member. Those positions are not likely to be at junior level.”

Union federation Cosatu’s parliamentary officer, Matthew Parks, welcomed the plan to freeze unnecessary positions. “But it must be negotiated at departmental and bargaining council levels because a top-down approach is not going to work,” Parks said.

“Unions and government have to discuss which positions are not needed.

“It is at the top where we really need to freeze positions, not positions of foot soldiers,” Parks said.

VWSA boss Thomas Schaefer said the company was pleased with the focus on reduced government spending and plans to review the future as well as the role of some of the state-owned entities. “This will go some way in alleviating the concern of the rating agencies which will hopefully help to stave off a downgrade by them,” Schaefer said.

Meanwhile, Gordhan placed heavy emphasis on the need for economic growth and for all sectors of society to “unite as a team” to pull the country out of the doldrums.

“We are resolved to restore the momentum of growth‚” he said‚ promising that the government would address the institutional and regulatory barriers to investment and growth.

He said the government’s infrastructure programme was expected to contribute to this growth, with the public sector to invest R870billion in transport‚ energy‚ housing‚ health and water infrastructure over the next three years.

Steel and Engineering Industries Federation economist Henk Langenhoven said Gordhan had set high targets for the state to meet, and, if achieved, these would be a turning point for the country.

Hustler said the chamber was relieved that there was no further taxation on businesses and grateful for no increases in VAT.