In a 1933 radio interview John Maynard Keynes said: “You will never balance the budget through measures which reduce national income. The chancellor would simply be chasing his own tail — or cloven hoof! It is the burden of unemployment and the decline in national income which are upsetting the budget. Look after unemployment and the budget looks after itself.”
On February 18 Stats SA released its latest quarterly labour force survey, which showed SA’s dismal economic performance over the past 16 years. From the fourth quarter of 2008 to the fourth quarter of 2024 the labour force grew by almost 8.7-million people. But the economy created just 2.3-million jobs, of which only 1.5-million were in the formal sector.
There are now 12.3-million people who do not work and the unemployment rate is 41.9%. If one disaggregates the data the economy created 3-million jobs for older people and shed 704,000 jobs for the youth. There was jobless growth for young people.
The reason for the unemployment crisis is the incompetence of the National Treasury and SA Reserve Bank and their failure to grow the economy and create jobs. From 2009-24 the economy grew by an annual average of 1.1%. The Treasury and the Bank (and nobody else) have the macroeconomic policy tools to grow the economy and create jobs.
The day after the Stats SA’s jobs release finance minister Enoch Godongwana was chasing his own tail when he went to parliament with a budget, which showed that he did not understand Keynes, the father of macroeconomics.
The primary objective of economic policy is not to balance the budget, but to grow the economy and create jobs.
Since they are measured as percentages of GDP and government spending, which tracks GDP growth, SA’s rising debt and debt service ratios are the inevitable outcomes of the Treasury and Bank’s failure to grow the economy and create jobs.
If we grow the denominator, both ratios take care of themselves, as Keynes said. It is painful that I have to keep explaining Macro 101. The Treasury is focusing on the wrong indicator. SA has a GDP growth problem, not a debt problem.
I reject the concept of a budget shortfall. The economy does not operate like a household budget or a company income statement. The primary objective of economic policy is not to balance the budget, but to grow the economy and create jobs.
The withdrawn 2025 budget showed that spending on construction has a multiplier of 1.9 times. Since it generates the income to more than pay for itself, there should be no questions about whether we can afford to invest in infrastructure.
Austerity has the opposite effect. As Nobel economics laureate Amartya Sen said: “Even if we want to reduce debt quickly, austerity is not a particularly effective way of achieving this.
For that we need economic growth. And austerity, as Keynes noted, is antigrowth.” Godongwana has presented the country with three false choices: borrowing, tax increases or spending cuts.
The debate between the ANC and the DA is about finding different ways of implementing austerity — through tax increases or spending cuts, both of which should be off the table because they are antigrowth.
The Treasury has been traumatised by the failure of previous attempts of raising revenues through tax increases. The 2023 Budget Review said: “Tax increases can impede economic activity and the negative effect is more pronounced when the economy is weak.”
The 2024 Budget Review says tax increases have negative feedback effects on economic growth and that raising revenues in a constrained environment comes with risks. The Treasury has now decided to discard its own evidence. It is clueless and has run out of ideas.
We are dealing with the failure of a neoliberal macroeconomic policy framework, which has deliberately disabled for no reason all the policy tools that have been proposed to revive the economy. Many of these macroeconomic policy tools do not even require the government to increase its borrowing.
• Gqubule is an adviser on economic development and transformation.
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