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[OPINION] Pravin Gordhan’s proverbial balancing act

So, true to the speculation Brian Molefe is going to be sworn in as an Member of Parliament (MP). What to make of this? It’s tricky to tell.

When President Jacob Zuma fired Nhlanhla Nene as finance minister in December 2015 and replaced him with the relatively unknown Des Van Rooyen, it was an obviously reckless act.

The outcry was loud and even Zuma realised he had overplayed his hand. We all know what happened next.

Since then Zuma has undermined Gordhan at every turn.

When Cyril Ramaphosa and Gordhan led the delegation to Davos earlier this year, one could almost hear Zuma seething.

He has become entirely unpredictable, yet is also constrained by his waning power, divisions within the African National Congress (ANC) and an economy straining under the weight of policy paralysis and a contracting global environment.

His strategic room to move might be limited but Zuma will no doubt try to push those limits. This time he might be less obvious than replacing Gordhan with Molefe. Might Molefe find himself heading up Public Enterprises or some such?

Whichever way the axe falls in a possible reshuffle, it is clear that Molefe himself is unfit to be an MP having resigned from Eskom after the so-called Saxonwold shebeen shenanigans.

He admitted then that he was stepping down from Eskom because that would be in the interests of good corporate governance.

Should Molefe be headed to Cabinet it would be, to say the very least, inappropriate and raise questions about his several communications with the Guptas and how that has ethically compromised him.

So, amidst all this destabilising speculation, Gordhan heads to Parliament to deliver his 2017 Budget Speech. While it is clear that he does not enjoy the confidence of his boss, the show must and will go on.

South Africa managed to stave off recent downgrades but the economy remains weak with low growth is predicted. While the South African Reserve Bank is forecasting 2017 GDP growth of 1.1%, the IMF is less optimistic, pencilling in 0.8%. It thus follows logically that if the economy does not grow, neither will tax revenues.

With such low growth, expansive plans will be difficult. Gordhan’s message will be that we need to keep our heads down, spend less and lose less through corruption and inefficiency.

It is therefore difficult to see any meaningful increases in government spending (think social grants, fees must fall, infrastructure maintenance)? While Zuma and the ANC loosely bandy about terms like ‘radical economic transformation’ in an effort to appease the voter base, there has been little thought given to practical implementation of ‘radical policies’ and also what they might mean given economic constraints.

The stark reality is that Gordhan’s primary focus must be to generate more revenue to fund the shortfall while containing costs. And so the questions must be: how can he do so and how will he do so?

The temptation for Gordhan must surely be towards the most simplistic and effective way of generating income by raising VAT, but this is politically unpalatable and would the ANC risk alienating its constituency in such a way? After all, the poor would be most affected. It is estimated that raising VAT by 1% would generate an additional R20 billion.

There are other perhaps more acceptable methods of generating additional revenue such as a higher fuel levy, more sin taxes (we can take that as a given), higher personal marginal tax rates or increases in estate duties, as well as increasing corporate tax. Raising VAT would be another burden on the poor in an environment of already high inequality. The latter is thus a political calculation the minister will have to make - and not without risk. Last year’s #feesmustfall protests should not be so easily forgotten.

While pondering the increase in taxes, the finance minister will also need to cut expenditure, in particular wasteful expenditure. Given the penchant by his boss and some of his Cabinet colleagues for waste and corruption, this will be a tough ask.

Here Gordhan will be looking towards containing municipal spending by reducing transfers to provinces in addition to tightening the belt at national level. In the medium-term budget policy statement, Gordhan emphasised the servicing of debt as the fastest growing portion of the government budget, accounting for 3.4% of GDP.

Prying eyes will be watching for an update on state-owned enterprises and in particular South African Airways after last week’s South Gauteng High Court judgment against the airline to the tune of R1.1 billion, an amount the airline can ill-afford after posting a R1.4 billion loss in the last financial year.

And while Eskom managed a R4.6 billion profit in their last financial year, this number pales in comparison to the R1 trillion Gordhan will have to find if we are to go ahead with the proposed nuclear power build. It is seemingly unobtainable, but will Gordhan have the power to say no to this deal so shrouded in secrecy and seemingly driven by the president himself?

Adding to the finance minister’s woes last October was the extraordinary R1.18 billion wasteful expenditure account. How does Gordhan rein in his colleagues, their ministries and specifically Zuma himself? Just a cursory look at legal fees paid on Zuma’s watch show a government that spends far too much money on litigation. Of course, much of this is to defend the indefensible as Zuma and his ministers often seek to avoid transparency and accountability through litigation.

And while the minister is focused on cutting costs and raising income, all of this is being done under the watchful eye of the ratings agencies. So Gordhan will have to keep his eye on the ball and do his proverbial balancing act though one cannot help but sense it is becoming harder to do.

In November last year and more recently deputy Finance Minister Mcebisi Jonas called for a ‘new social and economic consensus’ which had at its core inclusive economic growth and for a ‘critical mass’ of society to mobilise the country out of its ‘low growth, high inequality trajectory’.

This is indeed so and sufficient consensus across all sectors of society would provide greater space for true transformation of the economy and help us to eschew the shallow speak which so often accompanies economic debates.

But, ours is a brittle divided society lurching from crisis to crisis with a president who fuels virtually each one.

Gordhan, Jonas and team Treasury will have to keep their focus and hope those around them do too. Of course, Zuma has created sufficient uncertainty for us all to be asking whether Gordhan will still be in a job after today.

Judith February is based at the Institute for Security Studies. Follow her on Twitter: @judith_february