I love the harmless-sounding terms the Treasury’s speech writers use for budget speeches. As if to cushion a severe blow, they find words that float in the air like a feather and never seem to land anywhere, particularly not in the centre of our attention as they should.
Last month, Finance Minister Nhlanhla Nene once again spoke of “fiscal consolidation”, a term whose meaning was certainly lost on all but a few of us. It carries a profoundly important meaning.
South Africa’s philosophy has been to build reserves and pay off debt when the economy is doing well, and ramp up spending and borrowing to stimulate it when we enter lean years.
This is exactly what we have done, spending hundreds of billions of rand on various programmes including infrastructure, since 2008.
It would be no exaggeration to say whatever we did, not just with the money but in general, appears to have fallen into a dark blue sea, because economic growth continues to slow.
Unemployment remains high and our debt is climbing fast. By March, we will owe R1.786-trillion!
We will have spent about R128-billion servicing that debt.
By the time President Jacob Zuma’s term ends in 2019, it will have ballooned to R2.382-trillion and we’ll be paying much more than R128-billion a year to service it.
At a time like this, you’d expect us to start scaling back on the things we spend money on, but no. We employ more public servants now than when we started spending and university students want free tuition.
No one knows where to get the money. The government is broke.
By far the largest government expense is its salary bill, at almost 60% of the budget. The Department of Basic Education’s budget mostly goes to salaries. Notwithstanding our boasting about spending a lot on education, structurally, that expenditure is therefore inefficient.
Our deficiency in the education sector is not necessarily poor teacher pay, but lack of vital skills and infrastructure. We don’t spend nearly enough on it because that money has to come from somewhere. If salary increases are modest, teachers will strike.
Nonetheless, the money has to be found. There are three choices. We can borrow it, hike taxes or do both.
Because economic growth is slowing further and unemployment is rising, tax contributions are falling. We will therefore borrow more — R600-billion over the next three years to balance the budget. The additional debt comes with its own interest repayments.
So we need to borrow a little bit more to fund free university education, right? It sounds easy, but it has become enormously complicated.
The more debt you have, the more expensive additional debt gets. Creditors worry that you may not be able to meet your obligations to them, so they increase the financing charges, so the debt becomes more expensive. They also take into account behaviour and events in other areas to arrive at these types of decisions.
Eskom, for instance, was downgraded because of the leadership shenanigans there. After more than a year of management chaos, credit ratings agencies lost faith in its leadership. The same happens with countries too.
What am I getting at? The point is this: not even the best fiscal managers can prevent the effects of bad government, bad politics or bad policies. Where you have a combination of all three, whoever is finance minister can tinker with the levers, but this won’t stop a downward spiral.
The student uprising we saw is as much about accessible, affordable education as it is about the urgent need for new politics. What do I mean by this? A few things.
First, we need a change of outlook. A government that tries to get involved in every economic activity usually produces complex, growth-sapping bureaucracies. It also entrenches fiscal risk through inefficient state-owned companies.
There is no doubt that Eskom and Transnet are necessary, but the case is weak for PetroSA and South African Airways, for instance. Government has no business exposing itself to 100% of their risk when this can be shared with private owners.
Second, we must accept that our government is too big and a waste of money. Whenever there is a problem the ANC cannot solve, it throws a ministry at it.
We had poor economic growth, so Ebrahim Patel’s department came into existence. Our economy is now doing worse. Then someone said small enterprises were the future, but were failing in large numbers, so a ministry for small business was formed. Ditto the ministry of women and children. When more problems cropped up, we invented task teams and war rooms.
This leads me to the third and final thing: leadership. We’ve been avoiding it for a while, but we must accept that after six years at sea, SAS South Africa under Capt Zuma is sailing in dangerous seas while low on fuel, supplies and critical navigational skills.
I wish I could tell you what needs doing, but I won’t. A crisis usually focuses minds. For all the arguing we love, when the ship starts taking in water, we’ll know it’s reali is the editor of Business Day
SAS South Africa now sailing dangerous seas
Last month, Finance Minister Nhlanhla Nene once again spoke of “fiscal consolidation”, a term whose meaning was certainly lost on all but a few of us. It carries a profoundly important meaning.
South Africa’s philosophy has been to build reserves and pay off debt when the economy is doing well, and ramp up spending and borrowing to stimulate it when we enter lean years.
This is exactly what we have done, spending hundreds of billions of rand on various programmes including infrastructure, since 2008.
It would be no exaggeration to say whatever we did, not just with the money but in general, appears to have fallen into a dark blue sea, because economic growth continues to slow.
Unemployment remains high and our debt is climbing fast. By March, we will owe R1.786-trillion!
We will have spent about R128-billion servicing that debt.
By the time President Jacob Zuma’s term ends in 2019, it will have ballooned to R2.382-trillion and we’ll be paying much more than R128-billion a year to service it.
At a time like this, you’d expect us to start scaling back on the things we spend money on, but no. We employ more public servants now than when we started spending and university students want free tuition.
No one knows where to get the money. The government is broke.
By far the largest government expense is its salary bill, at almost 60% of the budget. The Department of Basic Education’s budget mostly goes to salaries. Notwithstanding our boasting about spending a lot on education, structurally, that expenditure is therefore inefficient.
Our deficiency in the education sector is not necessarily poor teacher pay, but lack of vital skills and infrastructure. We don’t spend nearly enough on it because that money has to come from somewhere. If salary increases are modest, teachers will strike.
Nonetheless, the money has to be found. There are three choices. We can borrow it, hike taxes or do both.
Because economic growth is slowing further and unemployment is rising, tax contributions are falling. We will therefore borrow more — R600-billion over the next three years to balance the budget. The additional debt comes with its own interest repayments.
So we need to borrow a little bit more to fund free university education, right? It sounds easy, but it has become enormously complicated.
The more debt you have, the more expensive additional debt gets. Creditors worry that you may not be able to meet your obligations to them, so they increase the financing charges, so the debt becomes more expensive. They also take into account behaviour and events in other areas to arrive at these types of decisions.
Eskom, for instance, was downgraded because of the leadership shenanigans there. After more than a year of management chaos, credit ratings agencies lost faith in its leadership. The same happens with countries too.
What am I getting at? The point is this: not even the best fiscal managers can prevent the effects of bad government, bad politics or bad policies. Where you have a combination of all three, whoever is finance minister can tinker with the levers, but this won’t stop a downward spiral.
The student uprising we saw is as much about accessible, affordable education as it is about the urgent need for new politics. What do I mean by this? A few things.
First, we need a change of outlook. A government that tries to get involved in every economic activity usually produces complex, growth-sapping bureaucracies. It also entrenches fiscal risk through inefficient state-owned companies.
There is no doubt that Eskom and Transnet are necessary, but the case is weak for PetroSA and South African Airways, for instance. Government has no business exposing itself to 100% of their risk when this can be shared with private owners.
Second, we must accept that our government is too big and a waste of money. Whenever there is a problem the ANC cannot solve, it throws a ministry at it.
We had poor economic growth, so Ebrahim Patel’s department came into existence. Our economy is now doing worse. Then someone said small enterprises were the future, but were failing in large numbers, so a ministry for small business was formed. Ditto the ministry of women and children. When more problems cropped up, we invented task teams and war rooms.
This leads me to the third and final thing: leadership. We’ve been avoiding it for a while, but we must accept that after six years at sea, SAS South Africa under Capt Zuma is sailing in dangerous seas while low on fuel, supplies and critical navigational skills.
I wish I could tell you what needs doing, but I won’t. A crisis usually focuses minds. For all the arguing we love, when the ship starts taking in water, we’ll know it’s reali is the editor of Business Day
Would you like to comment on this article?
Register (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Trending Now
Latest Videos