By the time you read this column, finance minister Enoch Godongwana will have (hopefully) presented the medium-term budget policy statement of the government of national unity (GNU).
South Africans would also be clearer on whether the National Treasury has found support for its Growth, Acceleration and Inclusion (Gain) strategy, working within the framework of the medium-term development plan adopted by the GNU. At the core of the medium-term budget is raising the economic growth rate from less than 1% now to more than 3.5% by 2030, a target President Cyril Ramaphosa has pushed for. The second is to raise the fixed investment rate from 14% of GDP to 20%-25%.
Godongwana’s speech comes in the context of the July comment by Reserve Bank governor Lesetja Kganyago that it would be lowering its inflation target to 3% as well as the government’s commitment to growing the primary budget surplus for the third consecutive year and stabilising the debt-to-GDP ratio in this fiscal year.
While Godongwana’s speech will help to firmly draw a line in the sand in terms of fiscal policy it will have to contend with the same debates that ensued after former finance minister Trevor Manuel unveiled in 1996 what became president Thabo Mbeki’s signature Growth, Employment and Redistribution (Gear) macroeconomic strategy. Gear sowed the seeds of the “1996 Class Project”, driven by an alliance of the SACP, Cosatu and a motley of other leftish forces.
Opposition to Gear — despite the several achievements it notched up such as improved GDP growth for five years — provided the rationale for Mbeki’s eventual ouster at the infamous ANC 2008 Polokwane conference. Mbeki’s imperial style and the sense of hubris surrounding his inner circle did not help matters much.
The Treasury, as the linchpin for a conservative economic agenda, and its plans have already been feeling the political fires. The ANC’s 10-point economic plan released in October signalled several expansionary measures, wanting to “align fiscal, monetary, trade and industrial policy”. This could be the making of a “trilemma”, with the Bank focused on inflation targeting, which emphasises price stability over employment, the Treasury focused on fiscal consolidation, and the trade, industry & competition department was supposed to push for industrial expansion.
However, the Treasury will probably be sticking to its mantra of “fiscal sustainability” but policymakers will need to weigh up the cost of a primary budget balance in the wake of the weakening of policing, the justice system, education and so forth. There is also still no strategy for unlocking the R1.5-trillion cash pile held by the private sector to improve the fiscal space for infrastructure expenditure.
The political calculations Godongwana has to make are in a context in which the SACP has decided to reduce its effect on the ANC, and therefore the GNU, by going it alone for the upcoming local government elections, and Cosatu has fissured to such an extent that it behaves like a policy taker. Populists in the EFF and MK will certainly seize the moment, perhaps hatching a “2025 Class Project”.
They could well take up the call made by the Institute for Economic Justice, which has called for increasing noninterest expenditure above 1.5% in the medium term, focusing on capital investments and expanding the social wage; measures such as the wealth tax, reducing tax breaks for high earners, better corporate tax enforcement and addressing state capacity, especially at the local level.
The biggest factor will be the GNU as seen in the debacle about the March budget process. While Godongwana called it as reflecting the maturing of democracy, it also emphasised the differences within the coalition government about economic frameworks. If Godongwana manages to hold the centre it would bode well for the rest of the GNU’s term.
But there is no gainsaying that the politics of the street, in parliament and even within the ANC could be tumultuous in the coming months.
Abba Omar is director of operations at the Mapungubwe Institute (Mistra)
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