Should government blow deficit because economy is tanking?
It’s a suggestion implicit in the ANC statement issued last Wednesday by the head of the economic transformation committee, Enoch Godongwana, following the release of the GDP numbers on Tuesday.
The statement has a substantive list of measures the party believes could provide a “fiscal stimulus”.
The quick wins and doable among them include: tax credits for companies that invest in job creation; increasing government investment in social and economic infrastructure such as water and sewer projects, housing, public buildings and public transport; investment in road and bridge maintenance that has a high employment impact; agricultural support programmes and land reform directed at supporting young people to find work opportunities; and scaling up the public works programme.
Previously, the ANC and the government said after their mid-year lekgotla that they wanted a “stimulus package” that would cost about R43bn, but would be deficit neutral. What Godongwana suggested last week is different. He suggests that macroeconomic levers must be used to shift the dynamics in the economy. This list of agenda items cannot be funded through reprioritisation of the budget and if they are to be taken seriously, the government must go out to borrow.
There is a case to be made for drastic steps. As much as the expenditure ceiling and debt consolidation have been the mantra of the last three or so years, the essence of Keynesian economics is that in times of economic crisis, the government steps in.
It is conceivable that a large infrastructure fund, perhaps linked specifically to certain crucial infrastructure — water, perhaps, or other urban development priorities — could be conceptualised.
Constructed and sold carefully enough, it could provide a credible story to investors and ratings agencies. It could be more credible in fact than the desperate attempt to stick to a fiscal framework without the growth (and revenue needed) to pull it off. Even if it is dismissed as a bad idea, it is something we should be discussing. The problem is, who will make the case?
Godongwana, the ANC economic policy man who periodically pops up in his statement fedora has shrunk back behind the parapets after his impromptu statement last week. Godongwana plays an uncertain role in the ANC. It is never quite clear during his cameo appearances if he speaks for anyone more than himself. What we do know is: his views are not widely shared in the ANC national executive committee, but that he also networks quite widely in broader ANC (Keynesian) circles. Last week’s statement would not have been his alone, but whose was it?
If the ANC economic transformation committee won’t float the idea, then perhaps the government’s economic and strategic thinktank could do it.
Except there isn’t one. A lone economic adviser in the presidency, backed up by a head of policy who is well respected but not an economist, are not in a position to do the technical work that could really explore the implications of the idea.
Perhaps the Treasury could step up with some ideas. But officialdom there has always depended on a strong political principal with the courage and stature to run with ideas. Without political cover, Treasury can’t be expected to be a first mover.
CONSTRUCTED AND SOLD CAREFULLY ENOUGH, IT COULD PROVIDE A CREDIBLE STORY TO INVESTORS AND RATING AGENCIES
Come the October medium-term budget policy statement and Treasury officials are in a position where the right fiscal choice is really not clear. Without any direction, they will be forced to tinker about the edges. Since 2017 the government has been cutting investment or “stimulus spending” sharply, in the main to fund free higher education.
In 2017-2018, R46.6bn was slashed; R48.3bn in 20182019 and R43.8bn in 20192020. Earlier in 2018, as violent protests over land and housing swept across SA, I looked into the implications of these numbers. It meant the government would build 100,000 houses fewer than its target for the five years between 2014 and 2019.
At face value this looked like a terrible mismatch of the allocation of resources by Treasury with what people on the ground actually need. It turned out not to be, because those 100,000 houses were not going to be built anyway, as municipalities and provinces routinely fail to spend these allocations.
Perhaps the Treasury can try and shift infrastructural resources towards those who can spend them. Perhaps cities, the more capable among them, can borrow and spend much more to boost their economies. Changes to the edges are the sensible option under these constraints but are not the rescue plan the economy needs.