The ANC and the DA have kissed and made up after the unprecedented political drama that resulted in the Treasury presenting three budgets during 2025. This shows that their disagreements were merely about different ways of implementing austerity — through budget cuts or tax increases — and that the two parties agree on implementing the ANC’s failed macroeconomic policies.
A mini-summit with eight other members of the government of neoliberal unity ended with a statement that identified eight areas needing urgent attention and excluded the jobs crisis from the list of priorities. There is still no plan to increase GDP growth and reduce unemployment, almost 18 months after they had entered into a coalition. The meeting paved the way for a “no drama” presentation of the medium-term budget policy statement (MBTPS) on Wednesday.
A US tariff shock has hit the SA economy this year. But there have been no government macroeconomic or industrial policy responses, except to talk to US President Donald Trump and his senior officials. Internationally, there is a risk that the artificial intelligence bubble will burst, resulting in a market crash on Wall Street that spills over into the real economy.
When it does happen, the government will again do nothing. The MTBPS is expected to announce a 3% inflation target and continue to aim for a primary budget surplus of 2% of GDP. These misguided objectives will continue to suffocate an economy that will have a third consecutive year of declining GDP per capita during 2025. By the end of 2025, GDP per capita will be lower than it was in 2007.
Businesses hire and invest when there is demand for the things they can produce. Stats SA surveys show excess capacity (or inadequate demand) of more than 20% for a very long time. Companies say the number one reason they do not invest is that people do not have the money to buy the things they can produce. I do not blame them. Why would any company invest in a disaster of an economy where average living standards are lower than they were 18 years ago?
By definition, the economic and jobs crises mean that there is not enough demand (or spending power) in the economy. The 3% inflation target means that interest rates will be higher for longer, which reduces potential demand or spending power. SA already has a 7.1% real prime lending rate — one of the highest in the world. There is no reason interest rates cannot be significantly lower.
The target makes no sense also because the current low inflation rate of 3.4% is a fluke and has nothing to do with monetary policy settings or interest rates. Interest rates cannot address supply-side inflation. The Bank cannot target what it does not control. SA does not have an inflation problem. It has had a crisis of chronically low GDP growth and soaring unemployment for almost two decades.
The primary budget surplus target means that the Treasury will be sucking out demand (or spending power) of 2% of GDP out of the economy each year. Why is it not obvious to the geniuses who run our country that the only way out of the crisis is for the Treasury and the Bank to do everything they can to increase demand (or spending power) in the economy? The ANC and the DA’s economic illiteracy — the belief that withdrawing demand from the economy will grow it — will result in rising unemployment until the 2026 local government elections. The electorate must punish them.
• Gqubule is an adviser on economic development and transformation.
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