The ideas exchange on the medium-term budget policy statement by Economic Research Southern Africa has produced a rich and varied set of ideas to relieve the pressure faced by Finance Minister Malusi Gigaba.
The panellists were the chairman of the think tank’s board, Elias Masilela, former National Treasury deputy director-general and now research associate at the University of Cape Town Andrew Donaldson, private sector economist and academic Prof Brian Kantor, Cosatu leader Tony Ehrenreich and the head of policy and research at the Institute of Justice and Reconciliation, Jan Hofmeyr.
They noted the fiscal pressure Gigaba would be under as he tables the medium-term budget policy statement on October 25, because revenue collection is far lower than February’s predictions.
Lacklustre and sluggish economic growth was having a concomitant effect on the deficit and rising debt-to-GDP level, which would affect public spending in the context of an imminent new wage settlement in the public sector.
THIS BUDGET STATEMENT HAS TO BE RADICALLY DIFFERENT TO TACKLE THE GROWING LEVEL OF PROTEST.
The panellists pointed to the need to build a new consensus around inclusive growth because low growth rates and persistent levels of unemployment, poverty and inequality threatened social cohesion.
There was a need to rebuild trust among stakeholders in the public and private spheres in the context of ethical challenges that threatened key institutions.
The emergence of new areas of potentially promising consensus between business and labour could form the basis for exploring emerging consensus on policy — not merely of leadership and discourses on state capture and corruption. Participants at the ideas exchange were united in their opinion that the context for this mini-budget was uniquely challenging and it would require clear initiatives and strategic interventions that could signal the groundwork for a new consensus around inclusive growth and the management of the challenges affecting key state-owned enterprises (SOEs).
Attention was drawn to spending pressure arising from SOEs and from the funding of tertiary education, infrastructure maintenance backlogs and municipal financial management challenges in a complex structure of local government.
Pressure also emanated from Public Service Co-ordinating Bargaining Council multiyear wage increase settlements, which are due to be concluded by the minister of public service and administration. The constrained fiscal space would probably mean the bulk of available spending would be used for the wage settlement.
The challenge of poor governance and procurement difficulties compound the fiscal pressure. While SA is not “falling off a fiscal cliff”, the distinct sense is that room to move is narrow.
Donaldson offered three clear proposals. There was a need to stimulate private sector and public sector capital investment, which might require a renewed and expanded role for development finance institutions such as the Development Bank of Southern Africa and the Industrial Development Corporation (IDC). Public finance could complement private sector investment in key areas.
SOEs should be restructured, with a clear focus on the sale of some, such as South African Airways, and the restructuring of others, such as Eskom.
Reforms should prioritise human capital, such as ensuring the new minimum wage deal was assisted in its potential positive effects by health insurance schemes and education investment that crowded in long-term human capital formation.
Ehrenreich emphasised that, for the full duration of the transition to democracy, the budget had not functioned as an optimal tool for poverty alleviation. While social grants and redirected spending priorities made a clear contribution to alleviating poverty, the net effect of broader macro policies and policy choices had resulted in worsening inequality, growing unemployment and a small middle class driven by consumer spending, which could not sustain a consumption-driven growth path as pressure on household income mounted.
He said this budget statement had to be radically different to tackle the growing level of protest and social disengagement from institutions as SA was on an unsustainable path, with 60% of young people unemployed and trapped in a cycle of poverty.
The trade union movement supported the drive for higher levels of economic growth. However, Cosatu said it should not be the jobless growth witnessed in the years when the economy did grow at higher levels, but inclusive growth, which had a meaningful effect on the legacy of the past.
Ehrenreich said it was clear SA needed a new deal that would seek to bring back the trust that was the hallmark of the 1994 political breakthrough, tackle the stifling role of monopolies and transmit the scale and scope of economic change that was needed. A new tone of collaboration could be detected between business and labour in fighting corruption, which could hold the promise for collaboration on a new economic deal.
Specific proposals included that the medium-term budget policy statement send clear signals that the economy was prioritising research and development to ensure that innovations marked the industrial base and services sectors and that the country was preparing for the Fourth Industrial Revolution.
Kantor emphasised that “more of the same would just not do it”. There had to be greater respect for market forces and a realisation that global growth was picking up. The fiscal drain of SOEs and their debt profiles militate against their being privatised and sold to recoup some public value. There was a clear need for Eskom to be broken up to release some of the pressure of its huge capital investment projects on the public purse.
It was suggested that two budgets were needed: an investment budget and a consumption budget. SA taxes heavily and spends badly and may have reached the limit of what can be extracted at the top level of taxation.
It was imperative that SA registered more equal growth and had a well-functioning labour market.
It was argued that SA’s growth problem was associated with the implementation of monetary policy and inflation targeting. Kantor strongly defended the independence of the South African Reserve Bank, but argued that monetary policy had to make it easier for the economy to grow.
He contended that there was a need to ask how monetary policy interacted with economic growth and to look at the experience of the Australian central bank, which does not react to exchange rate fluctuations in the same manner as the Bank. Kantor said the emphasis on secondary-round effects of inflation was often exaggerated as inflation expectations were quite stable and aggressive cuts could assist the growth effort.
Hofmeyr emphasised that the clear divergence between domestic and global growth needed to be categorically tackled by the mini-budget.
It was imperative that business, the government and labour rebuild trust to solve social challenges. The erosion of public trust in institutions would need to be arrested.
The division and fragmentation in society would have to be tackled, and trust would be a critical component of this.
Forging a development consensus would imply trade-offs by everyone and the role that policy certainty and political certainty would play should not be underestimated.
Business would have to broaden its conception of what investment really meant when one invested in one’s own market to ensure the sustainability of one’s business over time.
The ideas exchange generated a wide-ranging set of ideas but was also a clarion call that SA needed a new deal and there was significant expectation the mini-budget would signal such a deal.
• Taljaard is director of the think tank Economic Research Southern Africa.