Late last week, the Social Policy Initiative released a statement revealing that it had called on Ramaphosa to urgently host an inclusive debate on South Africa’s macroeconomic priorities in the wake of recent media coverage. (Emmanuel DUNAND / POOL / AFP)
In The Deficit Myth, American economist Stephanie Kelton references Margaret Thatcher’s address to the Conservative Party conference in 1983 in which the then British prime minister denied that there was any such thing as public money. “Let us never forget this fundamental truth,” Thatcher said.
“The state has no source of money other than the money people earn themselves. If the state wishes to spend more, it can do so only by borrowing your savings or by taxing you more.”
In her book, Kelton questions whether this was an innocent mistake, or “a carefully crafted statement designed to discourage the British people from demanding more from their government”. Afterall, Thatcher’s remark had the effect of concealing the currency-issuing power of the state.
In recent weeks, newspaper headlines in South Africa have delivered one bone-chilling message: the state has run out of money — and, if you’re at all interested in preventing its imminent collapse, you better be willing to make some or other sacrifice.
There is a lot wrong with this messaging. For one, it works on fear, which rarely has the desired effect. Second, it has done little to restore the trust so desperately needed when navigating the public through times of economic crisis.
As I hinted in my column last week, the government is balancing two sets of voters, both of whom have become increasingly frustrated with our listless leaders over the years: the public and the markets. Although the Constitution would suggest that the state is beholden to the interests of the former, it does feel like most of its energies have been focused on mending its image in the eyes of the latter.
When Kelton wrote her book — which seeks to bust the myths we have been led to believe about government spending — the world was in the thick of the worst health pandemic in recent memory.
Governments had little choice to intervene by providing stimulus, making themselves bigger in an effort to protect the most vulnerable. For a number of those governments, the pandemic would be a defining moment — a stress test of the public’s ability to rely on those they had voted into power.
In South Africa, the pandemic meant slowing down the pace of fiscal consolidation, initiated by then finance minister Tito Mboweni in a bid to lift the country out of junk status.
President Cyril Ramaphosa also unveiled a R500 billion Covid-19 rescue package. But, as others have pointed out, much of this stimulus never came to bear, a fact which, paired with ongoing fiscal consolidation, kept the economy from realising a genuine recovery.
Worse still, the government would go on to inflict even deeper spending cuts after the pandemic. As the Public Economy Project (PEP) pointed out in a paper published three months ago: “The fiscal strategy since the Covid-19 pandemic sought to achieve a sharp nominal contraction of expenditure allocations in a single year. This aimed to reverse spending introduced as temporary support during the pandemic and restoring the sustainability of the public finances in one-fell swoop.”
The government’s execution of this strategy was flawed. Although spending was substantially curtailed and a commodity-driven revenue boom temporarily allowed the treasury to achieve its short-term targets. The economic stagnation that has followed suggests a worsening fiscal position in the long run, the PEP noted.
This brings us to where we find ourselves now, teetering on the edge of another round of painful austerity despite earlier promises that fiscal consolidation would soon come to an end.
One economist explained that fiscal consolidation has to be temporary. The state cannot consolidate in perpetuity. Doing so represents a grave failure to fulfil its promises. Trust is broken.
Over the past few weeks, the treasury has sought to communicate the depth of its self-created fiscal crisis — sometimes openly but, for the most part, behind closed doors and through whatever clues the media has managed to get a hold of. A generous reading of this strategy is that the treasury is hoping to finally impress upon its colleagues in government what it believes to be at stake, forcing a politically perilous behaviour change.
But at the end of it all, the public continues to be kept in the dark, left only with nuggets of mistruth. Moreover, while the treasury’s tough line may appear to be promising in the eyes of investors and ratings agencies, if it cannot inflict at least one deep cut, the government could look even less principled than it did before.
Late last week, the Social Policy Initiative (SPI) released a statement revealing that it had called on Ramaphosa to urgently host an inclusive debate on South Africa’s macroeconomic priorities in the wake of recent media coverage.
In a letter to the president, the think tank’s executive director, Isobel Frye, wrote: “All indications are that the coming MTBPS [medium-term budget policy statement] will herald a more savagely austere budget framework with significant further cuts to social wage spending on education and healthcare. Together with social income grants, these state services, or budget line items, form the nexus of the social compact between the citizen and the state. To slash these is a betrayal, many would say, of this social contract.”
The SPI’s call comes after the Budget Justice Coalition’s demand for greater transparency about the government’s true financial position, as well as all available measures to raise additional revenue. The coalition also accused the treasury of having led “a campaign of fear regarding the immediate fiscal crisis”.
“This serves to create an environment of panic in order to ram through these unpopular and unnecessary budget cuts,” the coalition said.
What has become clear in the past couple of weeks is that the government’s cloak-and-dagger approach to fiscal decisions has not had the desired effect. Macroeconomic policy that affects us all should be done out in the open, lest we be walked blindfolded down an even more treacherous path — one that leads towards greater inequality and an even more broken social contract.