The United States economy is in such an almighty mess that $9-trillion has so far been committed to try to shore up the financial system. This was before treasury secretary Timothy Geithner announced this week that $2-trillion will be allocated to try to fix the banks.
These are numbers to conjure with. The US economy produces GDP of $13-trillion annually. The bailout is rapidly approaching the size of the economy.
Toxic sub-prime mortgages, the failed building block of the current crisis, total a relatively paltry $1-trillion. US banks were worth a combined $1-trillion before things went pear-shaped late last year. They’re now worth chump change, far less than the $2-trillion Geithner wants to spend to save them. This is an economy falling off a cliff.
Geithner and a legion of other finance ministers would give their fiscal deficits ($1,3-trillion, or R13-trillion, in his case) to have to deal with the relatively modest challenges that face Trevor Manuel and the South African economy.
But then, it could be said that our challenges are bite rather than monster-size because the incumbent has been doing such a good job for such a long time. Thirteen years to be precise.
Our economy is relatively inured from the global economic wreck and Manuel is still forecasting 1,2% growth this year, because the place is a massive building site. We are inconvenienced by traffic jams as transport systems are upgraded, but as Manuel told Parliament: ‘Oh what joy!”
The massive infrastructure programme, one of the biggest in the world, is keeping us going when many other economies have hit a concrete wall. The programme, which had a running total of R690-billion before this budget, is now increased to R787-billion.
We are spending this money on stadiums, power plants, roads, rail, hospitals, schools and water and sanitation.
Can you imagine if we were spending this money to bail out FNB, Standard Bank, Absa and Nedbank?
But we have our problems. Growth is slowing, tax revenue is down, joblessness is up and so is the need to borrow. The deficit this year is projected to be R94-billion, 3,8% of GDP.
I have been watching Barack Obama so closely in recent months, both on the stump and in office, that I found myself wondering how he would rate Manuel’s latest offering. He’d give it two thumbs up.
Notwithstanding the need to increase revenue, Manuel announced tax cuts of R13,6-billion. These will mostly target low and middle-income earners. After adjusting for inflation, people earning more thanR250 000 a year will pay more. Obama, who campaigned on a tax-the-rich ticket, would like this.
There is a strong emphasis on efficiency. Savings of R19-billion over three years have been identified across government departments. Manuel made it clear that he wanted more cuts where government programmes are not working. He wants not only to spend more, but better.
Obama has made bi-partisanship a feature of his politics. Manuel seemed at ease, playing to the DA and criticising programmes that are badly run by the ANC government. Skills development in particular came in for criticism as government excels in collecting funds but is hopeless in using them for their desired purpose.
Manuel was equally pointed in his comments about teachers who turn up late for school (or don’t turn up at all), kids who get social grants but don’t go to school and parliamentarians who do not promote a greater ethos of accountability throughout the public finance chain. Obama would like this a lot.
He’d also like the new bodies in health and education to promote a better quality of service delivery. Both men like the idea of getting a bigger bang from each buck.
Manuel has a raft of measures to start pricing the environment into what we do. Critics rightly say that they’d like to see green taxes matched by commitments to promote renewable energies through the introduction of feed-in-tariffs for example.
This means that green taxes would be linked to subsidies to promote clean technology.
Obama wants a greener economy because he worries about the environment and because he wants to import less fuel. Manuel’s fuel tax will help promote the wiser use of fuel and, perhaps, encourage a switch to public transport when the new rapid bus transport system is implemented later this year.
Both Manuel and Obama are in fiscal stimulus mode (as indeed are many governments worldwide as they try to ward off the worst effects of the recession).
Obama succeeded this week in getting a $800-billion package passed by legislators.
Manuel, who has been running budget surpluses for the past few years, is planning R787-billion in infrastructural spending.
A big theme for Obama has been the search for shovel-ready projects, those that are ready to go rather than those that will still take months of planning. Manuel made reference to shovel-ready projects, but was happy to tell Parliament that we are ‘already shovelling”.
If Obama was scoring Manuel’s budget, Manuel would get a lot of ticks. If Manuel was scoring Obama’s budget, though, I think he’d have a lot of trouble with the bailout mentality now permeating American business culture.
There was talk before the budget of a bailout for the motor sector here, perhaps as much as R10-billion, but happily this did not materialise.
Still, his latest budget was not bailout free. It could have been if Khaya Ngqula had managed to keep SAA on the wagon. Fly-the-taxpayer gets another R1,6-billion.