Share

Cees Bruggemans: Budget, country and the personal income plaster

By Cees Bruggemans 

What did Budget 2015 do for the country and its future, besides collecting a trillion Rand annually in taxes, borrowing another 200 billion, and spending near R1.2 trillion annually, putting money into many pockets who spent it all, wisely or otherwise, in providing goods & services for use by society, and in providing household income so that many bodies & souls may be kept together?

If the country’s mission statement may be defined as taking an imperfect legacy and growing into a more advanced, egalitarian, richer society, what is being done and what has Budget 2015 contributed in making it come true over time?

The road towards a more advanced, egalitarian, richer society is one based on the power of compound interest, “growth” for short.

We need to invest, expand, get cleverer, do more clever things per unit of effort, so that many more can participate producing much more per unit of labour and earning much more income so that much higher living standards for a much greater cross section of society can be achieved.

In our context, that road is the 5% growth one, allowing a doubling of real GDP (adjusted for inflation) at least every 14 years, a doubling of the formally employed labour force every 30 years (every generation), in the process achieving fundamental structural change.

Horizontally, in time, by increasing the number of insiders from less than 1-in-2 to closer to 9-in-10, and by reducing the number of outsiders from more than 1-in-2 to closer to 1-in-10.

Vertically, by the amount of income and assets in real terms earned and accumulated in average households, and in its elite elements (for income & wealth inequality will always be a reality, but relative to an average norm).

It makes an enormous difference whether that per capita income average is $7000 (as now, terribly skewed) or $30 000 (and less skewed by having more participating insiders).

If that is the futuristic mission statement, what is preventing it and what does Budget 2015 offer to do about it?

We are currently not on a 5% growth trajectory, and haven’t been for seven years. The 2004-2007 growth spurt of 5.5% didn’t count, for it was all bluster and credit speculation, not fundamentally sustainable. Indeed, for at least 50 years we haven’t succeeded in achieving 5% breakout speed, instead remaining mired in the Middle Income Trap already reached by the 1960s, a structural rigidity that hasn’t so far been flexibly transformed, keeping us hemmed-in in our miserable, conflict-ridden reality.

The outside world episodically smiles on us, giving us windfall handouts that we then mostly consume rather than wisely invest in changing our structural realities.

The outside world also episodically frowns at us, giving us headwinds that impoverish us, making us more reliant on our own efforts.

The era since 2007 has been such a Global Frown. Our export prices have been falling faster than our import prices, and our trade volumes have struggled.

In order to achieve 5% breakout growth we therefore needed to get more self reliant rather than hope to get a handy global assist. Instead, we did something inexplicable. We screwed up twice over.

Firstly, by letting our infrastructure maintenance and expansion fall hopelessly behind what was needed, by allowing some labour unions free play in skewing industrial relations in less than productive ways, and by imposing many new regulatory oversights, not all of which turned out to be supportive of the 5% growth mission, instead actively undermining productive effort & risk taking.

Secondly, by doing something very special, something we need to understand very carefully.

Government produces very little besides political oversight. The exceptions in our instance are infrastructure services (electricity, water, roads, railways, harbours), education, health care and police security (to the extent not privately contracted).

The actual heavy economic lifting is done mostly privately, as will be clear from visiting a working farm, a producing mine, a functioning industrial complex, and the myriad of service activities upholding our modernity.

For such heavy private lifting to take place with any enthusiasm, energy, drive, dreaming, risking, one needs confidence, about rules – property ownership, taxation, regulation – but also that infrastructure and labour force support will be there when needed, that enough demand is being generated to underwrite new enterprise activities.

The key ingredient here is mainly a naïve confidence, that the situation generally is supportive of business activity, that it is safe to venture despite many risks, that the country wants more activity and fully stands behind it.

By doing things that deflate such business confidence, the country does itself no favours. By doing too many things at cross purposes to what the 5% growth path requires, like not providing electricity, organised labour absenting itself, imposing rules that work counterproductively, maintaining skill scarcities rather easing them (even through importation), the confidence juices refuse to flow. They dry up.

The growth engine slows down, as private effort becalms, infrastructure and labour restricts, some regulations inhibit, all of it encouraging businesses to try their luck elsewhere, where conditions are more supportive, less destructive.

As in the 1980s, these realities, as much the external headwind as the two internal shortcomings, have caused the growth trajectory to fall to 2%. More of the same will lower it further. Less of it could lift it.

Which reconnects us with Budget 2015. What’s in it that guides us among the many shortcomings shaping us?

Here, we encounter a short-term impression and bigger ones.

The short-term one is that Budget 2015 is a holding operation. The lowered growth path has constrained government ambitions (by lowering futuristic spending ceilings) while worsening the state finances (tax generation struggling, maintaining reliance on debt issuance).

This has made the market guardians (global rating agencies) uneasy, signaling a willingness to downgrade us, making our credit more expensive, our ambitions more difficult to achieve via market routes.

Some people apparently like to think they can bypass markets and find sympathy with overseas compatriot governments sharing similar values & visions, but this has proven difficult in the past, and may prove more difficult in the future.

Don’t ask what your friends (or markets) can do for you. Ask what you can do for yourself, in the process making your global appeals more attractive, either way.

That’s what modernity is all about.

Our Budget guardian (National Treasury, acting on political instruction from cabinet) is very much trying to maintain our fiscal stability, credit rating credibility and market acceptance.

So, given the lowered growth path (Finance Minister Nene buys 2% for this year, who knows what next year & beyond will bring), future spending ceilings have been lowered, revenue enhancement has been proposed (at least R8.5bn in income tax rate & fuel levy increases, besides offering a R10bn lifeline to the road accident fund, keeping it solvent & generous).

And probably quite a bit of effort fighting corruption, inefficiency, profit shifting also making a contribution to fiscal matters.

But these are like plasters on many gaping wounds, stabilizing the patient. Yet probably not enough, considering that only half the R17bn in higher revenues needed has so far been identified, suggesting a second instalment next year, this time only via the personal income tax side?

For VAT isn’t viable in a local election year, companies may be carrying a full load with too many reporting disappointing results recently (though watch out for Judge Davis recommendations on company profit shifting), and the fuel levy may now be fully loaded (in line with peer countries overseas). This suggest another income tax round next year, but this time without fiscal drag relief?

Also, there was not a word about how to get back from a 2% to a 5% growth path, except a vague reference to 3% “later” but sans nuts-bolts-and-braces.

Yet that doesn’t come close to doing full justice to Budget 2015, its predecessors or successors. For though the thrust is one of short-term stabilisation, the Budget taxation & borrowing powers remain an awesome machine, mobilizing our resources in the state’s hands.

So Treasury & its Budget are enormous tools, still working effectively (if with growing qualifications) in getting their hands on resources that are one of the supporting keys to our 5% breakout growth path.

For they make it possible to keep the social peace by supporting 16.4 million welfare recipients to the tune of R155bn this year (more than the interest on the national debt), giving some hope & inspiration where otherwise there could only be raging despair (far, far worse than our actual reality). A bridge to a better future to come.

It makes possible maintaining and expanding our infrastructure (R813bn these next three years), invest in our human capital (R680bn these next three years), invest in our public health and personal safety so that our populace may be healthy & feel safe in its dealings, supportive of the 5% growth paradigm.

It also pays over some 40% of its non-interest resources as salaries to millions of public servants, so that they may offer efficient oversight & other supportive services, whether in municipalities, state-owned enterprises, provinces and lofty departments of state.

The money quantum isn’t an issue, weird as this must sound. But then we are a nifty, shifty, productive little society, able to generate resources that allow us through ploughing back in all these crucial areas to revitalise all those supportive areas crucial for the 5% breakout path.

These monies are being generated, mobilised, ploughed back.

Only they don’t in too many instances now seem to connect in the manner intended. That is a matter of choice, organisational capability, political acumen. Also values & ethics.

That’s got nothing to do with global headwinds, becalmed private confidence of our citizenry, reduced risk-taking, or Budget 2015, its many predecessors or successors.

It has got everything to do with the choices made daily in governing.

Some of those trillions spent really connect with the wheels, starting with those R155bn of welfare grants. And there are surely many public servants, or on the public payroll, who do sterling work. But their efforts are increasingly overshadowed at the margin by the antics of others who determine the overall outcome. It’s there where the raw rub resides.

Some of the Budget 2015 spending emphasis is misguided, for instance the support for the Davis menu of industrial policies. That’s money down the drain. But then so is overstaffing with inappropriate staff, too much travel and entertainment and meetings going nowhere, or the selection of some priorities, whether school books, provincial manning mixes & levels, ministeral fleets or nuclear power stations.

In an overarching manner, all this is taken care of under the heading “choice”. Mistakes can come in many packages, big & small, beautiful & ugly. Getting the rate of mistakes down (how about zero tolerance?) would go a long way to get this society and its new freedoms these past two decades to finally start really outperforming.

But try telling this to the politicians..

Finance Minister Nene, on behalf of cabinet, certainly cannot be blamed on this score. Defend the integrity of the state finances, retain our credit ratings, keep our resource mobilization engines working effectively so that we may keep on trying.

To do what? Persist with past mistakes and making new ones, or proceed with great care to achieve what all 53 million South Africans passionately want, a better life for all?

That, though, requires more than just wishing it were so. That goes way beyond Budget 2015 which is merely a resource mobilization & allocation mechanism directed by Cabinet.

* For more in-depth business news, visit biznews.com or simply sign up for the daily newsletter.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.93
+0.0%
Rand - Pound
23.90
+0.0%
Rand - Euro
20.40
+0.1%
Rand - Aus dollar
12.33
+0.1%
Rand - Yen
0.13
-0.0%
Platinum
908.05
+1.2%
Palladium
1,014.94
+1.3%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders