An emergency budget needs bold decisions, including a bigger public sector

COMMENT

South African Revenue Service Commissioner Edward Kieswetter recently argued that we need to creatively re-imagine the economy. In the current context where jobs are being shed globally and in South Africa, any re-imagining of the economy needs to put job-creating strategies at its centre. In this case, the Covid-19 pandemic has a silver lining: the proposed controversial February 2020 budget was not passed. 

At the heart of the controversy was the R160-billion cut to the public sector wage bill which would have inevitably resulted in tens of thousands more job losses. It is in this context that the finance minister is meant to table an emergency budget on June 24. An emergency budget is quite an appropriate term given the devastating effects of the virus, which will be with us for a long time to come. Yet South Africa has long required a budget that addresses a multitude of emergencies. 

Woes at Eskom and investment strike 

Before the outbreak of the virus and in the lead up to the February 2020 budget, South Africa was contending with a crisis at Eskom. This crisis consists of falling electricity supply and rising electricity prices, a growing debt burden as well as mass maladministration and corruption. The economy has also experienced a decline in output and growth, not unrelated to Eskom’s woes, for two consecutive quarters. This happened even though fourth quarters usually entail greater levels of consumption because of  Black Friday and festive season spending. This is an ominous sign given the subsequent domino effect caused by the pandemic. 

Masses of unemployed and precariously employed people are angry. For very different reasons, so, too, are the corporate elite. For the past few years corporations have been voicing their dissatisfaction in the form of an “investment strike”, illustrated by the fact that corporations have amassed more than R1.4trillion in accumulated reserves. This pool of finance is stashed in commercial banks, accumulating interest, where it will remain for want of investment opportunities greater than the interest paid by banks. For them, this requires weaker labour laws allowing them to retrench even more workers, with an even tighter squeeze on their wages.

Structural reforms to suit business

The pandemic provides the perfect storm needed to push through their favoured  “structural reforms” ala Naomi Klein’s “shock doctrine”. But, besides mass retrenchments, many businesses are also hoping that the economy will be restructured to allow for the still greater liberalisation of trade and capital. This will empower investors to take their money elsewhere, where it’s more profitable and saves them from having to pay taxes or reinvest in South Africa. 


Structural reforms, such as public sector retrenchments and privatisation of state enterprises, reforms that our finance minister is ideologically committed to, will further devastate the lives of The Xcluded. 

Besides increased precarity and hunger associated with the outbreak of Covid-19, the virus has once again reminded the world that privatisation of health systems, or public-private health systems like ours in South Africa, is incapable of meeting the majority of people’s needs and in this case, even endanger the lives of the privileged minority. As the contradictions of the health system are exposed, any decision to further decimate the public sector, while expanding the privatisation of electricity generation, will have dire repercussions. This will be so both in terms of the levels of unemployment and inequality as well as in terms of not being able to reduce our greenhouse gas emissions enough, and in time, to avoid a climate catastrophe.

Charting a different path

All of this presents us with an opportunity to choose a different path and in so doing provide the better life for all we were once promised. To make this vision a reality would require the government to radically break from its policies of old and implement a different kind of structural reforms — reforms that prioritise people and nature over profit. To do that will require bold decisions. 

Any country that decides to put people ahead of profit would automatically face an exodus of capital, as the rich try to escape their nightmares of having to share their wealth. Therefore, in the first instance, it is important to implement more stringent exchange rate and capital control measures to curb the outflow of capital. This would ensure that wealth remains in the country for local investment. 

The increased regulation of capital flows would have the additional advantage of relieving pressure on our balance of payments (the measure of money flowing in and out of the country). Presently, the balance of payments has a structural problem related to weaknesses in the current account. Contrary to the mainstream view, the country’s growing current account deficit has less to do with a weak trade balance and more to do with tens of billions of rands being paid in the form of dividends and interest payments to non-resident bond and equity holders. 

Speedbumps (unremunerated reserve requirements — the level of foreign exchange that must be held by the South African Reserve Bank) is one way to slow these outflows, thereby reducing the pressure on the current account and, by extension, the balance of payments. This way, the country would be able to break its dependence on attracting financial inflows to boost the capital account in order to offset the losses in the current account, thereby creating additional space to lower interest rates even further than we already have.

Another emergency intervention, beyond the introduction of a universal basic income grant that does not replace other forms of social security but complements them, is for the government (and the Reserve Bank) to shift its priority from inflation targeting to employment targeting. To this end, the government must act as the employer of last resort. In other words, it should employ all people willing and able to work and pay them a living wage. But this is not about creating jobs out of thin air. There is lots of work to be done. We need an expansion of public housing, public transport and other essential services such as health care, education, childcare, social work et cetera.  

We also need to overhaul the energy sector and fast track South Africa’s transition to a low-carbon future. This entails so much more than just the production of utility-scale renewable energy (RE) and the local manufacturing of RE infrastructure. It must be a society-wide transition that includes the retrofitting of all buildings to be energy efficient and transforming sanitation systems to be more water efficient. Water efficiency must extend to maximising rainwater harvesting on a national and comprehensive scale, along with the restoration of our rivers. 

Moreover, land distribution and the promotion of small-scale agroecology, are some of the necessary people-centred interventions. In this shift it is also critical to recognise and socialise all the care work and social reproductive labour that has for too long been intentionally unrecognised or underpaid for the greater maximisation of profit. In most societies it is working class women who carry the brunt of social reproductive labour and care work. In the same way that we see nature as a free gift, so are these forms of work. If these aspects of life and social reproduction were to be costed into the current system’s logic, it would dramatically erode profits — perhaps there would not even be any. 

All this necessitates a far larger public sector and commensurate public-sector wage bill. Choosing this bold path would provide work for many. It will also be work that contributes to the improvement in people’s lives and the standard of living within their communities and to combating growing wage inequality. Perhaps most urgently it will begin the transition required to halt the climate crisis.

Financing change 

The money for this exists. Although raising revenue from income taxes in a recession would be challenging, we can look to taxing historically accumulated income — wealth. Given that wealth is even more unequally distributed than income, its redistribution among the rest of the population is all the more necessary. In the medium term, increasing personal income taxes (among high net-worth individuals and high-income earners) as well as raising corporate income taxes — coupled with the above mentioned capital controls — are crucial steps in transitioning to a more egalitarian society. In line with the still relevant proposals made in the early 1990s by the Macroeconomic Research Group (MERG), the country should raise the tax-to-GDP level to at least 30%. 

This would allow us to finance the expansive public sector we need. There are also substantial resources currently invested in financial markets — a large portion of this is from public and private pension funds. Redirecting these resources to the state at below market interest rates would guarantee long-term returns on investment to the pension funds, as well as liberate large pools of finances for investing in the social spending required for the state to advance its role as the employer of last resort. 

This is an outline of the type of emergency budget we need, one that puts the needs of people and nature before profit. There is every good reason for us to use this emergency budget to deal with both the immediate coronavirus crisis as well as the historical and structural inequalities that have long pre-dated lockdown. The time to act is now. Not to act would be a tragedy and yet another missed opportunity.

Subscribe to the M&G for R2 a month

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

And for this weekend only, you can become a subscriber by paying just R2 a month for your first three months.

Dominic Brown
Dominic Brown is the economic justice programme manager at the Alternative Information & Development Centre in Cape Town

Related stories

Companies need to plan for the future through skills development

COMMENT: Businesses need to focus on the training the so-called soft skills needed to respond to an ever-changing environment

ANC: ‘We’re operating under conditions of anarchy’

In its latest policy documents, the ANC is self-critical and wants ‘consequence management’, yet it’s letting its members off the hook again

Sudan’s government gambles over fuel-subsidy cuts — and people pay the price

Economists question the manner in which the transitional government partially cut fuel subsidies

Ramaphosa: We want investment pledges to translate into new jobs

To move out of South Africa’s economic funk, Ramaphosa is prioritising the materialisation of pledges made at the previous investment conferences.

Angola’s president squanders his early goodwill

Angolans lose faith in João Lourenço as the economy tanks and corruption persists

Ramphosa extends national state of disaster

As the president extends the state of disaster for another month, other restrictions will be eased, including those on alcohol sales and international travel
Advertising

Subscribers only

ANC: ‘We’re operating under conditions of anarchy’

In its latest policy documents, the ANC is self-critical and wants ‘consequence management’, yet it’s letting its members off the hook again

Q&A Sessions: ‘I think I was born way before my...

The chief executive of the Estate Agency Affairs Board and the deputy chair of the SABC board, shares her take on retrenchments at the public broadcaster and reveals why she hates horror movies

More top stories

Exclusive: Top-secret testimonies implicate Rwanda’s president in war crimes

Explosive witness testimony from the International Criminal Tribunal for Rwanda implicates Paul Kagame and the RPF in mass killings before, during and after the 1994 genocide.

Shadow of eviction looms over farm dwellers

In part two of a series on the lives of farm dwellers, Tshepiso Mabula ka Ndongeni finds a community haunted by the scourge of eviction

Editorial: Crocodile tears from the coalface

Pumping limited resources into a project that is predominantly meant to extend dirty coal energy in South Africa is not what local communities and the climate needs.

Klipgat residents left high and dry

Flushing toilets were installed in backyards in the North West, but they can’t be used because the sewage has nowhere to go
Advertising

press releases

Loading latest Press Releases…