Like finance minister Tito Mboweni, I was taken aback by the letter written by mostly academic economists urging parliament to reject his latest budget. Perhaps I would have worded my opposition in a slightly more diplomatic way than the minister expressed himself on Twitter.
One can understand the frustration of policymakers faced with unprecedented economic and financial shocks, which have forced them into previously unpalatable choices. And then you have people on the sidelines with the most obvious and easy solutions, with no need to consider such trade-offs.
In reading the letter, I was transported back to my student self. I didn’t study any economics until postgraduate level, and that was nowhere near advanced enough for me to call myself an economist. My academic highlight came as an undergraduate when I was lucky enough to be part of a great history department at Rhodes University.
When one reads about all the companies being closed down, workers losing their jobs and having their wages cut, it is hard not to come to the conclusion that SA’s middle class is being decimated.
It was mostly staffed by like-minded individuals, so when I handed in a lengthy essay during one course on post-liberation speech I got a surprise that has since stood me in good stead. Instead of the praise I was sure would come, the note from Prof Wells said my writing was way too polemical to be good history. As it turns out, I never did become an historian. But it wasn’t a bad lesson for a future journalist.
So when I saw the economists’ open letter, my initial thought was that surely this was too polemical to be good economics. And that wasn’t because I disagreed with them. It’s easy to agree that the government’s R500bn relief plan has been underwhelming.
To allocate 40%, or R200bn, of the so-called stimulus to a lending scheme run by private banks was a bit disingenuous. As it is, that has only delivered about R10bn, equivalent to just 10% of the initial R100bn goal, due to factors such as lenders having administered significant relief before it was announced, and some business owners not being eager to take on more debt when their prospects are uncertain.
Diagnosing the problem is often the easiest part, and nobody will dispute that it would be preferable if there was more money for grants or infrastructure spending. Mboweni would surely love nothing more than to be able to deliver on Cosatu’s demand of a R1-trillion stimulus.
However, the letter falls short when it comes to solutions. Rather than thought-out plans, it reverts to slogans. There’s no recognition of the country’s dire fiscal position or that it’s on the verge of what Mboweni describes as a “sovereign debt crisis”.
Already more than 20c of each rand collected via tax this year will go to servicing the debt — more money for fund managers and bankers who hold the country’s bonds, and less for education. The economic collapse caused by the Covid-19 lockdown means debt is racing away and is more likely to exceed 100% of GDP in the next few years than meet Mboweni’s ambitious target for it to stabilise at about 87% of GDP in 2023/2024.
If SA had entered the financial crisis with numbers that looked more like it had when the 2008-2009 crisis struck, there might have been a useful debate to be had about stimulus versus austerity. As it is, there is nothing to show for the fiscal space Pravin Gordhan, then finance minister, and Jacob Zuma, the president at the time, were handed by Trevor Manuel and Thabo Mbeki.
In fact, according to Reserve Bank governor Lesetja Kganyago, SA has “just completed our worst growth decade on record — worse than the 1980s or the 1990s”, with South Africans on average getting poorer since 2013. In other words, a decade in which government spending, according to the Treasury, rose by an average of 4% over inflation didn’t magically make the country richer. This implies the problem lies elsewhere.
The most disappointing part of the letter is that the section on alternative plans comes towards the end and is rather short. The wish list could be financed through “solidarity taxation, increased borrowing, mobilising domestic quasi-public funds and Reserve Bank” action.
All of these would be worthy of detailed examination if they were not written as if there’s no debt crisis and SA can borrow at will and pay rates in the market that are both sustainable and reasonable. Judge Dennis Davis has written substantially about how hard it would be to institute a solidarity — or wealth — tax in the middle of a pandemic.
While the focus is on institutional and implementation challenges, a glance at newspaper headlines points to a more serious problem. When one reads about all the companies being closed down, workers losing their jobs and having their wages cut, it is hard not to come to the conclusion that SA’s middle class is being decimated. These, one would presume, would be the people who would be expected to contribute to such a solidarity tax. From here it looks like they are struggling to merely survive.
And then you have the Reserve Bank. That’s allocated only one word, “action”, making it impossible to analyse the recommended action. Based on previous discussion, one can assume negative interest rates and uncontrolled money printing are the called-for solution. Which would not be a problem in itself if the authors had expanded on their argument and provided examples of nations that have made themselves rich by merely borrowing and printing money.
It is right that policymakers are held accountable and their prescriptions questioned. This particular critique doesn’t pass the test.
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