Like a household, new spending will be financed through tax increases or budget cuts. (Photo: David Harrison)
After a decade of worshipping at the shrine of fiscal consolidation and structural reforms with nothing to show, the treasury’s 2022 medium-term budget policy statement decided that the best way to get an answer to its prayers was to show more faith and pray harder.
It doubled down on debt reduction and pinned all its hopes on structural reforms to unleash an improbable wave of new private sector investment in network industries — energy, transport, water, and telecommunications.
The words fiscal consolidation — another name for austerity measures — and structural reforms first appeared in the treasury’s 2012 budget review publication. “As the economy recovers and fiscal consolidation proceeds, government borrowing will moderate, with debt projected to peak at 38.5% of GDP in 2014-15 … While growth is expected to pick up over the medium term, structural reforms are required to set the economy on a different trajectory that increases labour absorption, raises competitiveness and ensures that the benefits of growth are shared,” the publication read.
Every year since 2012, irrespective of who was the minister, the treasury has presented different versions of the same sermon at each national and medium-term budget policy statement. The austerity started slowly, gathered pace and then the numbers started to get very large.
Despite the spending cuts, and the decimation of public services, the debt-to-GDP ratio continued to increase. Initially, the structural reforms were vague. As they became more specific, the treasury developed implausible models that showed how much growth they would generate. But the economy did not grow.
Neoliberalism and its doctrines of austerity and structural reforms are a religion. The facts — that fiscal policy can grow the economy and reduce the debt burden — do not matter. The “new view” of fiscal policy, outlined by United States economist Jason Furman in a 2016 paper, is that fiscal stimulus can have “large positive effects”. It can stimulate or “crowd-in” private investment, pay for itself or have a lower cost than headline numbers suggest and improve fiscal sustainability.
In South Africa, with an unemployment rate of 44.1% and spare capacity of 22.8% in large industrial companies in May, there is scope for a significant non-inflationary stimulus. But the treasury dogma — a fringe view among economists — is that fiscal policy is ineffective for various reasons. In the February budget, the treasury projected a windfall of R470-billion — and R197.4-billion in 2021-22, R134.4-billion in 2022-23 and R138.2-billion in 2023-24 — compared with what it had expected in the 2021 budget.
The medium-term budget policy statement, a mid-year adjustment of the budget based on new economic conditions, projected a main budget windfall of R294.4-billion for the three-year medium-term expenditure framework period until 2024-25 compared with what had been expected in February. This comprised R106.4-billion in 2022-23, R95.3-billion in 2023-2024 and R92.6-billion in 2024-2025. About half of the windfall — R148-billion — will be added to spending during the medium-term expenditure framework period.
Despite windfalls of R764.4-billion that were announced this year, from high commodity prices and a higher rate of inflation, the treasury will still implement austerity measures. Go figure. Revenues will increase by 6.6% a year during the medium-term expenditure framework period. Non-interest spending will increase by 3.3% a year, a sharp decline in real per capita terms after considering inflation and the growth of the population.
Real non-interest spending, which declined by 1.1% during 2021-22, will suffer cuts of 1.1% in 2022-23 and 4.6% in 2023-24. This will result in a further deterioration in the provision of public services, which have declined during the past decade of austerity. The treasury says the cuts will result in a primary surplus — revenue minus non-interest spending — in 2023-24. This is based on an implausible zero percent increase in nominal (before inflation) non-interest spending.
But the treasury will still not use fiscal policy to grow the economy and create jobs if it does achieve the primary surplus, because government spending is not effective, according to the discredited religious doctrine. Like a household, new spending will be financed through tax increases or budget cuts. The only way to grow the economy is through structural reforms. After a decade of evidence that they do not add much to GDP growth, the treasury will continue to preach the same message.
The medium-term budget policy statement said it would provide details in the February 2023 budget on how it would “take over” up to two-thirds of Eskom’s R400-billion debt. It said nothing about how it would finance Eskom in the future because the doctrine is that the private sector will provide 100% of new capacity. But, as a statement by a united front of unions and social movements said, the country’s energy security cannot depend on the “yes-no” decisions of private investors and developers: “It is foolish to entertain the idea that the private sector and market liberalisation can provide a workable alternative to load-shedding.”
After taking over Eskom’s debt, there will still be a need for public financing of new energy capacity. A proper government adds capacity to its electricity grid every year without much debate. There should be a line item in every budget to finance the addition of new capacity.
The budget statement extended the R350 a month social relief of distress grant until March 2024. But there was no word about expanding it to provide a basic income grant. Finance Minister Enoch Godongwana gets angry each time he is asked the question. The parliamentary budget office said: “Fiscal consolidation has contributed to increased anger and heightened risk of social and economic instability as inadequate spending on social support and infrastructure has exacerbated hunger.”
The parliamentary budget office told MPs that fiscal policy can be an essential part of the country’s policy toolbox to move it into a new, inclusive, more stable and sustainable economic growth path. It can support economic development and transformation and be an effective tool for redistribution.
The Budget Justice Coalition asked MPs: ‘When will parliament stand up and demand an end to austerity?”
Indeed, the time has come for our public representatives to reject the medium-term budget policy statement.
Duma Gqubule is a financial journalist, analyst, researcher and adviser on issues of economic development and transformation.
The views expressed are those of the author and do not necessarily reflect the official policy or position of the Mail & Guardian.
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