Finance 101: What Does the E-toll Debacle Mean for Ordinary South Africans?

What are we to make of the recent e-tolling affair? Yes, it was a victory for democracy in the sense that civil society stood up and opposed government efforts to steamroll e-tolling onto Gauteng road users. The scheme’s opponents were successful as the High Court has granted an urgent interdict to suspend the introduction of e-tolling – a ruling which will reportedly now be appealed by government.

Why was government (in particular Finance Minister Pravin Gordhan) so committed to introducing e-tolling, and so committed to the “User pays” principle? At the moment the Minister treads a very fine line. On the one hand, he is trying to create jobs by financing infrastructural projects (such as the roll-out of improved rail services and of course improving Gauteng’s roads). On the other hand, he is trying to keep government expenditure under tight control to prevent the budget deficit from escalating above the budgeted figure of 4.6%.

How does government create jobs via infrastructural projects? By their nature such projects are labour intensive; for example, building new roads means plenty of low skilled jobs. Minister Gordhan aims to reduce unemployment by as much as a quarter via government’s infrastructural programme. And bear in mind that unemployment, currently at 25%, is the biggest challenge facing the country.

Why is Minister Gordhan also intent on keeping government expenditure on budget? Ratings agencies like Fitch have put it to the government that they are concerned that state expenditure will spiral leaving the government with a too large deficit to finance. The ratings agencies are skeptical that the Minister can keep the deficit at 4.6% and reduce it to below 4% in the next few years. They point to the government salary bill which is budgeted to grow by 5% this year. Already COSATU is gearing up for a fight over government salary increases.

South Africa suffered a ratings downgrade earlier this year and we do not want to see another downgrade. This is because downgrades push up the cost of government borrowings and add to the government deficit. Ultimately, this is funded by the taxpayer.

If you overlay this onto to the global situation where Greece, Spain, Italy and Portugal are dragging the global economy down due to their nations’ high indebtedness, it becomes obvious why Minister Gordhan is determined to keep South Africa’s debt at manageable levels. A few more downgrades and we could see some unwelcome economic times ahead.

The future of e-tolling is now up in the air. The debt of SANRAL (the management company of e-tolling) is R20 billion which government will have to pick up if e-tolling is abandoned. There is no doubt that government could afford this but it comes at a bad time when government is trying to create jobs via infrastructural jobs and to keep its debt levels under control. E-tolling threatens to undermine government’s credibility in these two sensitive areas.

© DotNews, 2005-2012. This newsletter is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice.

This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Your email address will not be published.