Weaponising the fiscus

Of recent months, particularly from a US perspective, it has sometimes felt that we, as South Africans, have been unfairly cast in the awful grey apartheid-era light that exhales from figures such as Elon Musk, Peter Thiel and David Sacks, all of whom spent a portion of their childhoods in South Africa in the 1970s.  

One imagines Musk, for example, whispering into the ear of the orange-tinted king like the sycophantic Gríma Wormtongue hissing into the ear of the decaying Théoden in The Lord of the Rings. Or Sacks, Trump’s new AI and crypto czar, bringing to him on bended knee a cauldron overflowing with gold and silver coins he has collected from the impoverished masses, all of whom paid the Trump memecoin tax that was demanded as an act of Vatican-like admiration. Or Thiel, for that matter, standing at the foot of the craven king’s throne, pleading for another Palantir contract.  

However, having now carefully read the transcript of the speech made by Ebrahim Rasool, the very recently banished South African ambassador to the US, I do think the time of blaming apartheid-era figures may have finally come to its incorporeal end. 

Rasool’s ignominious expulsion, having called Trump a supremacist, having implied he is instinctively racist, and having questioned “the role of Afrikaners in that whole makeup”, is a diplomatic faux pas of Homeric proportions. None of the three mages above, by the way, are of Afrikaans heritage. Imagine slandering your neighbour, to his face, in his house, as a guest, never mind as a diplomat, after barely a few weeks in what one would think is a role of significant commercial importance for South Africa.  

Oddly, however, and strangely coincidentally, South Africa and the US, while diplomatically rent asunder, do find themselves in a similar political quandary as it pertains to their respective fisci.  

Finance minister Enoch Godongwana’s compromised budget, proposing a 0.5% VAT adjustment this year, and another 0.5% next year, is still being firmly rejected by the DA. The proposed budget will return to the National Assembly for a final vote by April 2.  

For the past 30 years, the process of approving the budget has run without interruption, because the ANC held the majority in the National Assembly. However, having lost 71 seats in the 2024 general elections, the ANC now requires the support of MPs from other parties in the government of national unity. If the budget is not passed by April 2, the law allows government to continue spending up to 45% of the previous year’s budget until the new budget is approved. But, after that, we could face a US-style government shutdown.  

Since its current budget process was established in 1976, the US has experienced 20 funding gaps, where government agencies were forced to close or scale back their operations. Four of these resulted in major shutdowns. The longest lasted 34 days in late 2018, triggered by a dispute over funding for Trump’s US-Mexico border wall.  

The most severe shutdown, however, occurred in 2013, the result of a budget impasse over funding for Obamacare. During the 16-day shutdown, about 850,000 federal employees were furloughed, while another 1.3-million were required to work without pay. Non-essential services were halted, and it is estimated to have cost the US economy $24bn. 

When the federal government runs at a deficit, it borrows money to cover the difference by issuing Treasury securities. Under the US constitution, only Congress can authorise the borrowing of money on the credit of the US.

US debt has increased significantly since the 1980s from less than $1-trillion to the current level of $36.1-trillion. Since 2002, the US federal government has consistently run a budget deficit and so the debt ceiling has, since then, become a deeply toxic political weapon.  As recently as last week, a shutdown was narrowly averted.  

In spite of being the economic minnows that we are, it is perhaps instructive then, looking from afar, to attempt to glean some cautionary insight from the US.  

Balancing act

The US government has for decades been persistently fiscally irresponsible, is essentially broke, and is regularly on the cusp of incurring a sovereign default event. The only reason it gets away with it is because of the power of the US dollar, and the size of its almighty economy. The weaponisation of the debt ceiling, characterised by undignified backroom horse-trading, has led only in one direction. That is, to an unholy, unsustainable debt-to-GDP level of 124% as of December 2024. Compare that with South Africa’s 75.1% as of September 2024.  

This haggling over a 0.5% VAT hike, played out on the public stage like Samuel Beckett’s excruciating play, Waiting for Godot, may nevertheless be rendered irrelevant by a legal opinion recently submitted to parliament. According to this, Godongwana’s decision cannot be blocked, except by a money bill, which, conveniently, only the finance minister has the power to introduce. Undoubtedly, there will soon follow contradictory jurisprudence.  

Irrespective of where on the ideological spectrum one finds oneself, there is one immutable truth that must ultimately prevail: every nation state, every company, every household, must have a budget that balances – that does not engineer itself over time into a ballooning debt trap. Otherwise, like many nations before us, we will reach our Minsky moment from whose gaping jaws we cannot extricate ourselves. This is what, I imagine, Godongwana was attempting to avoid. 

One can certainly empathise with the political instinct to use the fiscus to demand power-sharing and concessions on other burning issues. But the history of such bartering, certainly in the US, reads like a series of Charles Dickens’s cautionary tales; the outcome is always, inexorably, a further erosion of fiscal discipline, higher debt and ever increasing sovereign risk.   

David Buckham is founder and CEO of Joburg-based international management consultancy Monocle Solutions and is the author of six published books.