What to do with a windfall? This is a question that confronted the budget office and finance minister Enoch Godongwana in his maiden medium-term budget policy statement (MTBPS) speech last week.
The MTBPS is about adjustments to what we were told in February, and some clues on what to expect in the following February main budget. It also tells us for the first six months how much has been spent in relation to the targets set in the preceding February budget.
Beyond its technical function in the budgetary process, this MTBPS was an opportunity for the recently appointed incumbent to make his imprint in the contested terrain of fiscal policy. And stick to the fiscal consolidation and primary budget surplus script he did. Yet it is important to underscore that this was done in a context where there was R120bn more in the kitty than had been expected by his predecessor in February.
This has been a welcome outcome for the aggressive debt management strategy so central to the “growth story” being pursued by Madiba Street. Godongwana suggested that this story “should focus on improving competitiveness, productivity, investment and employment”.
At a firm level, much of the fiscal response is focused on the supply side. These supply-side shifts include the corporatisation of our ports authority and market structure changes in allowing third party use of rail systems.
While many of these reforms will be welcomed by industry, we must not confuse structural reform with structural transformation. While some reforms touted as the former may contribute to the latter, they are not the same thing. Structural transformation refers to a transition towards higher value and more productive activities. And in our case, moving up the value addition ladder in the global matrix of production. Fixing rail and port logistics and restructuring state entities may incentivise this transition, but it alone will not achieve this. Demand-side responses matter too. And fiscal policy has a role.
In this case, demand refers to all the places that improve productivity, incentivise value addition via consumption, and ensure upward social mobility for individuals and households. It is here where the mini budget held clues about what we might expect in the next few weeks.
At a time when there is great need for artisanal skills to fix the Eskom “skorokoro” and the new technologies that fire the energy transition, the R620.39m downward adjustment in technical vocational education and training allocations is unsettling. So too is the decline in university subsidies, and a decline of R54bn in community education. The additional R178m allocated to the presidential employment intervention for early childhood development assistants is welcome.
Other demand-side elements were also welcome, protecting the consumption basket of poor households through a R26.2m special appropriation to fund the R350 grant through to the end of March 2022.
Expenditure on bulk-water infrastructure was down by R572m compared to the last financial year, largely because the Treasury had to withhold tranche payments to municipalities that failed to comply with division of revenue requirements.
It seems municipal dysfunction is a major driver of the structural growth-related weakness of counter-cyclical policy. Furthermore, it is concerning that six months into the informal settlement upgrade programme less than a quarter (24.7%) of serviced sites have been delivered and less than 15% of fully subsidised houses have been provided. These are all the jobs and value we leave on the table due to weak systems and spending.
What does all of this suggest about how to spend a windfall? Frankly, that new allocations and programmes mean little in an environment where systems and processes are incapable or unwilling to spend the money. Resolving that, more than the aspiration for a primary budget surplus, should be the main priority.
Otherwise, our fiscal policy will become synonymous with wasteful spending or, worse, no spending, rather than a complement to structural change. We would all be poorer for it.
• Cawe (@aycawe), a development economist, is MD of Xesibe Holdings and hosts MetroFMTalk on Metro FM.
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