The national treasury likes to deliver budgets built around a big idea, the infrastructure surge of 2004, for example, or the “fiscal space” that would enable deficit spending in the face of 2009’s global recession.
These key notes are always supported by the familiar treasury rhythm section of macroeconomic stability, accountability in government and an implicit call for those departments responsible for reforming the real economy to get on with the job. But it is around the big themes that the narrative of policy development is organised.
Pravin Gordhan’s 2011 budget speech is full of big ideas, notably a R5-billion subsidy for youth employment, major investments in the government’s new growth path and a push towards a greener economy. None of them, however, is actually funded in the three-year expenditure framework laid out by the budget.
The result is a set of spending proposals that represents a treasury team gritting its teeth and holding the line against the fiscal barbarians, but too politically tied down to make the big push that faster, more inclusive growth and job creation require.
The most striking absence is the youth wage subsidy, widely touted in Thursday’s press as a done deal. In fact, it is not. It is a detailed set of proposals that was due to go to the National Economic Development and Labour Council (Nedlac) for consideration by business and organised labour as the Mail & Guardian hit the streets.
That, it now seems clear, was not the original plan. On the contrary, the budget documentation and conversations with frustrated treasury officials make it clear that the intention was to announce the subsidy on Wednesday. The Budget Review, the more detailed document underpinning Gordhan’s speech and representative of his department’s view on all the main issues it traverses, was printed a few days ahead of the speech, and it leaves little room for doubt: “It is estimated that the subsidy will support 423Â 000 new jobs for young workers.
Given that industry would have employed a certain number of young workers without the subsidy, net new job creation is expected to be 178Â 000 jobs. The subsidy will cost R5-billion over the three-year spending period.”
Establishing the subsidy
By the time the speech had been printed — on Tuesday night — this certainty had vanished: “Details of a R5-billion youth employment subsidy are set out in a discussion paper, for further consideration in [Parliament] and at Nedlac.”
There are two ways to read this change. One is that Gordhan lacked the fortitude, in spite of President Jacob Zuma’s public support for a youth wage subsidy, to push it through in the face of intense opposition from Cosatu.
The other is that Zuma and Gordhan are intent on establishing the subsidy, but feel they have to create a watertight political defence by going through the consultative motions first. Clearly Gordhan believes the subsidy is the right thing to do.
As he put it in his speech: “We cannot view the fact that 42% of young people between the ages of 18 and 29 are unemployed as merely a statistic. Young men and women in cities, informal settlements, towns and villages may not have jobs, but have skills in life. They possess the awareness and the ability to learn, they drive fashion and inspire with their music, yet they know their local traditions. And they have hope and look to us to give meaning to that hope.”
They’ll just have to wait a little longer while the politics of the alliance are accommodated seems to be the subtext. Then there is the New Growth Path announced by Economic Development Minister Ebrahim Patel, which is supposed to be the big idea to end all big ideas.
Gordhan name-checked it in his speech and the Budget Review dedicates a full chapter to the central thrust of the NGP’s “inclusive growth and development”. But read carefully and it is abundantly clear that the treasury has given up little by way of new funding to the industrial policy initiatives and “green jobs” programmes touted by the NGP. The Review boils the path down to a very simple statement: “For the period ahead, employment creation will be the principle barometer of South Africa’s progress.”
Industrial policy
Five key principles, all hallowed, mainstream treasury precepts dating back nearly a decade, are set out in support of this objective: education and skills development spending; infrastructure investment; social security reform; and fiscal rectitude.
Why is there no new cash for industrial policy in general and green jobs in particular? The deputy director general in the national treasury, Andrew Donaldson, was clear: there are limits to what the state can and should do. “We’ve got to be careful who we might squeeze out,” he said.
Pressed on the coming COP17 climate change conference in Durban and the need for South Africa to show progress, he said: “The green economy debate now has to get real.” In other words, someone has to put some substantive, credible proposals on the table before the state starts throwing cash around. There is about R800-million in unallocated funding that will probably go this way, he said.
“The truth is that the high-level science here is ahead of the curve— we now need real coordination between government departments.” As for other state-led elements of the NGP, the treasury is backing industrial facilitation rather than the kinds of subsidy currently handed out to the car and clothing industries. “It is softly spoken, but we are backing serious investment in industrial development zones,” said Donaldson. “It’s been too slow.”
There should be rapid expansion in coastal cities off the back of IDZ investment, he suggests, perhaps using some of the cash from the R9-billion jobs fund announced by Zuma in his State of the Nation address.
“East London and Port Elizabeth ought to be booming. If you look at the [infrastructure] of Buffalo City, it was built to be much larger than it is.” Frustration at the treasury and the Reserve Bank over the slow pace of this kind of real economy or micro-economic reform, which includes infrastructure backlogs, competition, skills development, “regulatory uncertainty in mining and agriculture” and red tape, was clearly in evidence both on and off the record.
Reserve Bank governor Gill Marcus, under pressure throughout the past year to cut interest rates and weaken the rand, put it clearly: “If the micro issues are addressed, it would follow that all of these things would enable lower interest rates— It can’t be that by decree you have looser monetary policy.”
In short, it may be that there is a big idea in the 2011 budget: using state resources to transform the skills base, the labour market and the apartheid-era spatial arrangements in which the economy is still trapped, instead of using them to intervene in specific companies or sectors.
The political economy of 2011, however, has pushed that idea into the “softly spoken” background. The result is that this budget holds the line instead of moving forward. Perhaps that’s the most we could hope for, but it seems a pity.