{"id":157418,"date":"2020-02-26T18:47:47","date_gmt":"2020-02-26T16:47:47","guid":{"rendered":"https:\/\/www.myza.co.za\/budget-shows-treasury-is-desperately-short-of-ideas-to-fix-south-africas-economic-woes-the-conversation\/"},"modified":"2020-02-26T18:47:47","modified_gmt":"2020-02-26T16:47:47","slug":"budget-shows-treasury-is-desperately-short-of-ideas-to-fix-south-africas-economic-woes-the-conversation","status":"publish","type":"post","link":"https:\/\/www.myza.co.za\/press\/budget-shows-treasury-is-desperately-short-of-ideas-to-fix-south-africas-economic-woes-the-conversation\/","title":{"rendered":"Budget shows treasury is desperately short of ideas to fix South Africa’s economic woes | The Conversation"},"content":{"rendered":"

Budget shows treasury is desperately short of ideas to fix South Africa’s economic woes<\/a>: <\/p>\n

South Africa's finance minister, Tito Mboweni, ahead of his budget speech.<\/span> EPA\/Nic Bothma<\/span><\/span><\/figcaption><\/figure>\n

At the core of this year\u2019s budget proposals from South Africa\u2019s national treasury is the admission that national debt is no longer expected to stabilise. In previous years, bar one brief exception, budgets and medium-term budgets repeatedly promised that debt would stabilise even as previous years\u2019 promises were broken. <\/p>\n

The reasons are, however, not new. There\u2019s the low economic growth rate, 0.9% for the current year. There are shortfalls in tax collection, R63 billion in the current year. Then there is higher-than-planned spending on state-owned enterprises. As a result, the ratio of national debt to the size of the economy is expected to exceed 70% in 2022\/23. Five years ago, former finance minister Nhlanhla Nene promised it would not exceed 50%. <\/p>\n

Debt service costs are now approximately 15% of government spending and the fastest-growing spending item. This is up from 10% in 2014\/15.<\/p>\n

Population growth is estimated to be 1.4% a year, meaning that economic output per person is declining. In that sense, South Africans are getting poorer. The most notable state-owned enterprises are Eskom (the power utility) and South African Airways. Eskom has been allocated an enormous R112 billion over the next three fiscal years. The national airline will get a minimum of R16.4 billion. The spending on both entities is R60 billion higher than previously planned.<\/p>\n

Treasury proposes to offset the revenue shortfall and expenditure increase through a R160.2 billion reduction of the public sector wage bill. The cuts are intended to run across national and provincial governments as well as public entities. It is acknowledged in the bowels of the treasury\u2019s documents that the cuts in the wage bill \u201cwill inevitably have negative consequences for the economy and social services\u201d. Reducing the wage bill will also hit tax revenue collection.<\/p>\n

Unlike previous years, no tax increases are proposed. <\/p>\n

Meanwhile, at the policy level, the proposals suggest \u201cstructural reforms\u201d. These are needed to increase economic growth, without which only more pain will follow in subsequent years. But these aren\u2019t adequately substantiated in relation to South Africa\u2019s current economic situation.<\/p>\n

The country\u2019s public finances and economy have avoided the rapid downward spiral that would have resulted had the state capture faction of the majority party taken power in 2018. Nevertheless, the current budget proposals show that the government is hamstrung by the country\u2019s fiscal and economic situation. And that it\u2019s distressingly short of ideas to get out of it.<\/p>\n

Asking public servants to pay<\/h2>\n

Reducing wages is preferable to reducing public service employment at a time when unemployment rates are even higher than their usual extremes. In past years, the treasury reduced public service posts by stealth. It capped provincial expenditure baselines, forcing provinces to cut staff numbers. Employee costs are the largest cost item in providing health and education services. Treasury had proposed to reduce the wage bill through an early retirement programme. This always seemed overly optimistic and potentially counterproductive if it led to the best public servants leaving. It has not yielded the desired spending reductions.<\/p>\n

But looking at the new budget proposals together, they amount to the treasury wanting public servants to pay for Eskom bailouts directly from their current and future salaries. The proposal of various trade unions to use worker pensions to relieve Eskom\u2019s debt burden appears to have been disregarded. In the place of that seemingly sincere initiative, the treasury has opted to play a game of brinkmanship. Its proposal on a wage reduction was formally put to unions only the day before it was tabled. The lateness is evident in the fact that the details of the proposal were not even reflected in the detailed expenditure plans across spheres of government.<\/p>\n

Not only does this proposal imply immediate pain for workers and the economy, but it also serves to undermine the role of workers and unions in deciding the restructuring and future trajectory of state-owned enterprises. Given the desire to use Eskom\u2019s crisis and the country\u2019s fiscal situation to push various vested and ideological agendas, this seems unlikely to be coincidental.<\/p>\n

Nor do the budget documents explain why it\u2019s equitable to get funds for Eskom bailouts only from public sector workers rather than the private sector or general consumers of electricity. The result may be to sabotage any prospect of a much-needed social compact between government, labour and business on Eskom and public finances. That could also end up undermining the credibility of the budget itself.<\/p>\n

The vacuousness of \u2018structural reform\u2019<\/h2>\n

What stands out from the budget is how little of substance the treasury and the minister of finance have to put on the table in the way of feasible solutions. <\/p>\n

Economic growth is rightly cited as the critical issue. Within that, \u201cadequate electricity supply\u201d is a priority. Yet the treasury continues to rest heavily on rhetoric about private sector participation in the generation of electricity without providing even the most basic information. <\/p>\n

In particular, what\u2019s missing is an estimate of the impact of increased private sector energy generation on Eskom\u2019s revenue and finances. Since Eskom is the main expenditure pressure and risk, this is a remarkable omission.<\/p>\n

The monster in the room remains Eskom\u2019s debt. It is now a matter verging on a national disgrace that a feasible consensus plan has still not been tabled to address it.<\/p>\n

But Eskom is not an isolated case. There are other examples of the failure of the government to act decisively and convincingly when necessary. One of the best examples of state failure on policy and public finances is the Road Accident Fund. Its accumulated liabilities have been accelerating dramatically in recent years. It was obvious that a rapid, decisive intervention was required. Yet that still has not happened. In the interim, the fund\u2019s liabilities have risen from R180 billion in 2016\/17 to a projected R593 billion in 2022\/23.<\/p>\n

Other than the failure to table a convincing plan for Eskom, the treasury repeatedly refers to \u201cstructural reforms\u201d. This is facile, recycled rhetoric, a smokescreen for recycled economic policy proposals.<\/p>\n

To the extent that there is any substance to the treasury\u2019s version, it emphasises the regulation of various sectors of the economy. Yet its proposals are outdated and dubious. They are also inadequately substantiated and contradicted by the available evidence. <\/p>\n

\n

Read more: South Africa is planning more regulators: this is a bad idea <\/strong> <\/em> <\/p>\n

\n

For example, the failed regulatory structure in electricity has contributed, and continues to contribute, to the Eskom crisis. Treasury, however, wants to replicate that model in transport and water. This isn\u2019t the \u201cevidence-based policy\u201d and a \u201clearning developmental state\u201d that the minister of finance and various economic advisors continually pontificate about. Rather it\u2019s the transplanting of ideas of past eras that are pushed by ideological and vested interests.<\/p>\n

It is almost two years since Cyril Ramaphosa took over as president of the country and evidence is mounting that the parts of the state being relied on to steer the country out of a potential fiscal and economic crisis \u2013 the national treasury and the presidency \u2013 lack the intellectual capacity or political savvy required.<\/p>\n

\"The <\/p>\n

Se\u00e1n Mfundza Muller receives funding from a European Union-funded project, "Putting People back in Parliament", led by the Dullah Omar Institute (University of the Western Cape), in collaboration with the Parliamentary Monitoring Group, Public Service Accountability Monitor (Rhodes) and Heinrich Boell Foundation (South Africa). He is affiliated with the Public and Environmental Economics Research Centre (University of Johannesburg), regularly making inputs to Parliament oversight of the national budget, advising civil society groups on public finance matters and consulting for private sector organisations on an ad hoc basis. He resigned from the South African Parliamentary Budget Office in 2016. The views expressed are his own.<\/span><\/em><\/p>\n

Source:<\/strong> The Conversation \u2013 Articles (AFRICA)<\/a><\/small>
\n<\/p>\n

Read more on The Conversation<\/a>.<\/p>\n

Join the fun:<\/strong> Add Your event<\/a> | Submit a Press Release<\/a> | Add your listing<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Budget shows treasury is desperately short of ideas to fix South Africa’s economic woes: South Africa's finance minister, Tito Mboweni, ahead of his budget speech. EPA\/Nic Bothma At the core of this year\u2019s budget proposals from South Africa\u2019s national treasury is the admission that national debt is no longer expected to stabilise. In previous years, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","ngg_post_thumbnail":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[4584],"tags":[4635,741,8890,37524,7477,8886,3759,3749,3576,212,5706],"class_list":{"0":"post-157418","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-africa-news-2","7":"tag-africas","8":"tag-budget","9":"tag-conversation","10":"tag-desperately","11":"tag-economic","12":"tag-ideas","13":"tag-short","14":"tag-shows","15":"tag-south","16":"tag-treasury","17":"tag-woes","18":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/157418","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/comments?post=157418"}],"version-history":[{"count":0,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/157418\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/media?parent=157418"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/categories?post=157418"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/tags?post=157418"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}