Creative solutions needed

Like Sifiso Skenjana, I am concerned that the plan to achieve fiscal consolidation by means of crude budgetary cuts is misconceived (“Fiscal Expansion, Not Austerity, is What SA’s Economy Needs”, August 28).

In 2010 the UK government went the same route by initiating an austerity programme, with the same ambitious aim of cutting its budget deficit and reducing the national debt as a percentage of GDP.

However, the budgetary cuts inflicted on government departments had a devastating effect on society, while the achievements were limited. Every aspect of life was negatively affected: there was, for example, an increase in crime because of police cuts.

Now, after a lot of hardship, austerity has been dumped and the UK is gung-ho for growth.

One can imagine the enhanced negative effect on SA where many more people rely on government services.

And, of course, cuts imply more unemployment, which needless to say can be ill afforded. Apart from the individual hardships, government spending and fewer salaries to spend is the antithesis of growth, since demand and output will be reduced.

Moreover, services will be prejudiced through a shortage of personnel in areas such as policing and health care. Different and creative solutions should be looked at.

For instance, Unemployment Insurance Fund money could be mobilised proactively to subsidise employers who choose to keep staff instead of retrenching them.

The UK utilised a temporary employment subsidy in 1971 to keep people in jobs.

Keeping interest rates high can be justified only either to control inflation or to support the rand. But demand is flat and inflation is either imported or administered, and therefore cost-push (which interest rates do not influence). With respect to the rand, investors may well prefer a growth strategy.

In any event, because of the global low to negative yield environment there is ample room to cut rates and still leave yield hunters plenty of meat in SA bonds.

Sydney Kaye Cape Town