Gordhan's manual for success

New Finance Minister Pravin Gordhan tells Nic Dawes what activism might mean amid global recession and a major rethink of the functioning of capitalism

‘Activist’ may be Pravin Gordhan’s highest term of praise, and for the past decade he has channelled his own activism into turning the South African Revenue Service from the loathed and incompetent collector of apartheid taxes into a superbly efficient machine that funds massive, if not always well implemented, welfare and infrastructure spending. He now has a smaller staff and a much wider remit.

Trevor Manuel often used to joke about the fact that you were “on his left”.
What is that going to mean for the way you do the job that he held for so long?

Tags don’t matter. Tags get abused in trying to label people. What is important is that the ANC and President Jacob Zuma have said they have major concerns about delivery. Among those concerns are ensuring that there is growth on the one hand, but also ensuring that there is inclusive growth. I make no bones that I am passionate about achieving social justice, but within our current trajectory. We may have to develop initiatives that ensure South Africa can survive [the current economic] situation.

President Obama’s chief of staff, Rahm Emmanuel, has said that “we aren’t going to let this crisis go to waste”. Do you think that you have more freedom to develop initiatives that the markets would previously have punished you for because there are now such big questions about the architecture of capitalism?
The good thing is that there is a debate. As minister Manuel has been pointing out in the IMF and elsewhere, the global imbalances we see require redress. It is a work in progress to see what possibilities there are for improving the functioning of the economic system. South Africa will have to engage in that debate while maintaining continuity and stability in the policies that have worked for us.

Could one of the changes be more aggressive industrial policy? Higher tariffs? Tax breaks?
Industrial policy requires a lot more attention. With one of the imperatives being job creation, these micro-programmes that emerge from the trade and industry department [DTI] will be crucial.

The fact is that bureaucrats at the treasury have long been critical of “picking winners”, and they’ve often felt the plans drawn up by the DTI aren’t up to snuff.
As we work with the new planning ministry, the ministry of economic development and the DTI, [we will be] creating new synergies and cohesiveness. These are the kinds of issues that we will have to resolve.

Another area that might open up given the big global debate is inflation targeting. No less a liberal than Martin Wolf of the Financial Times has called for a rethink. You drew a lot of attention by saying it should be discussed. What did you mean?
What I was saying was that economic policy as it stands will continue. At the same time we know there is a debate. The approach this administration wants to take is to hear people, but the two are not linked. Policy continues—work continues on that basis. President Zuma has put a new dynamic into public discourse. Let us hear one another talk.

But, in fact, it could be argued that the Reserve Bank isn’t really implementing its inflation-targeting mandate very religiously right now, given the rationale for the recent cuts.
I’d rather not comment on that.

Given the challenges, do you think the overall tax burden at about 28% of GDP is right? And is South Africa’s income-tax system progressive enough? Should the rich be paying more?
We’re very comfortable where the tax ratio is right now. Lower collections have pushed it closer to 27%, and it is going to be a tough year to collect even the target we have set, depending on whether the “green shoots” [of recovery] are really there. We’ll take stock once we have the figures, but I don’t foresee any major changes.

One of Manuel’s big frustrations, both with government departments and Parliament, when he was in the job was the way the money you collected was spent. Not the quantity so much as the quality. Who is now going to monitor and report on that? His commission? Collins Chabane? The treasury?
The formidable insight and knowledge that the treasury has built up in the public finance sector is available to the country as a whole. There’s no doubt there are challenges. There is going to be a huge squeeze. Apart from borrowing or raising more taxes, cutting inefficient or wasteful expenditure is going to be one of the crucial tasks this ministry faces. Importantly, we have a new Parliament. Parliament needs to play a more decisive role beyond numbers to actual value addition.

You take over at a time of crisis, when South Africa has some serious vulnerabilities, not least in the current account. Are you nervous?
The current situation requires additional vigilance. In a few months’ time we’ll have a better sense of the problem. I am not saying there isn’t a downturn, but we are much better than we would have been if not for the budget surpluses of the past two years.

Finally, the treasury bureaucracy is famously cohesive. Are you confident you will keep your top officials and preserve the culture of “team finance”?
I’ve built and sustained teams at various levels for 30 years. We have a loyal and patriotic team, with a profound dedication to public service, and that is a huge plus for the new minister coming in.

Nic Dawes

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