GORD­HAN RAT­TLES THE BUD­GET CAGE

Nei­ther the ex­ec­u­tive nor Trea­sury has fully em­braced op­tions to aus­ter­ity, writes Dick Forslund

CityPress - - Front Page - Forslund is se­nior econ­o­mist at the Al­ter­na­tive In­for­ma­tion and De­vel­op­ment Cen­tre

The bud­get speech on Wed­nes­day is, un­doubt­edly, go­ing to be the most chal­leng­ing for “new” Fi­nance Min­is­ter Pravin Gord­han.

The pres­i­dent’s state of the na­tion ad­dress set the tone by, yet again, as­sur­ing South Africans that govern­ment has un­der­taken to “spend pub­lic funds wisely and to cut waste­ful ex­pen­di­ture”.

Im­por­tantly for Gord­han, the pres­i­dent af­firmed that the main al­liance in the coun­try would be saved – the al­liance be­tween busi­ness and govern­ment.

There were hints in the medium-term bud­get pol­icy state­ment last year, and in the me­dia this year, on what can be ex­pected from the bud­get speech. Be­yond the sym­bolic acts of reign­ing in govern­ment spend­ing and call­ing on min­is­ters to travel econ­omy class, there will be con­tin­ued bud­get cuts to re­duce the bud­get deficit from 3.8% to 3% of GDP.

There have also been ru­mours of an in­crease in VAT from 14% to 15%, or even 16%, with ev­ery per­cent­age point sup­pos­edly adding R15 bil­lion to the bud­get.

To date, govern­ment and Trea­sury have been un­fail­ing in their ob­ses­sion with aus­ter­ity and bal­anc­ing the bud­get at the ex­pense of higher house­hold debt, fewer ser­vices and ever-in­creas­ing un­em­ploy­ment and cor­rup­tion. At the heart of the rhetoric be­hind the “hard bud­get choices” that Gord­han will present is that “there is no al­ter­na­tive”.

On the con­trary, there are many op­tions, and Trea­sury and the ex­ec­u­tive have a range of choices re­gard­ing how govern­ment spends taxes, reg­u­lates and pro­vides ser­vices, re­builds fis­cal ca­pac­ity and en­sures that so­cial spend­ing is equitably dis­trib­uted.

Sadly, nei­ther the ex­ec­u­tive nor Trea­sury has fully em­braced th­ese op­tions, and the cri­sis in higher education is just one ex­am­ple.

In higher education, an aus­ter­ity regime has, in fact, been in place since at least 2011. While there have been shifts in al­lo­ca­tions within the higher education bud­get, there have been no over­all in­creases, in real terms, to ad­dress grow­ing de­mand, so it should have come as no sur­prise that cuts in univer­sity sub­si­dies pro­voked stu­dents to rise up and de­mand free education.

How­ever, given the govern­ment’s cur­rent pri­or­i­ties, it is clear that this de­mand is in­com­pat­i­ble with cost-con­tain­ment plans.

To un­der­stand the squeeze on higher education, you have to know the real cost of pro­vid­ing it. Stats SA’s in­fla­tion in­dex for higher education is the best mech­a­nism we have for as­cer­tain­ing this cost. If you use the con­sumer price in­dex (CPI), as Trea­sury of­ten does, spend­ing on higher education per stu­dent would have gone up by 15% be­tween 2011 and 2015. How­ever, the costs in­volved in de­liv­er­ing higher education have, for many years, been close to dou­ble the usual CPI, hov­er­ing at around 9% of the av­er­age price in­crease per year. This means that in Fe­bru­ary 2015, there was a 15% de­crease in al­lo­ca­tion of real re­sources per stu­dent be­tween 2011 and 2015, and not an in­crease. Th­ese cuts in fund­ing forced univer­si­ties to off­set in­creased costs by in­creas­ing their fees.

It is clear that the de­mands on the govern­ment go be­yond higher education to other sec­tors. It is for this rea­son that the govern­ment has to do much more than cut pro­grammes and taxes.

It is time that Gord­han, on be­half of the ex­ec­u­tive, present an al­ter­na­tive bud­get.

To start with, this al­ter­na­tive bud­get would scrap the plan to cut the bud­get deficit from 3.8% to 3% of GDP. The govern­ment should turn away from the “free” fi­nan­cial mar­kets for its bor­row­ing needs and to the huge pub­lic sec­tor pen­sion fund, which it con­trols and can bor­row from at a lower in­ter­est rate. If Gord­han pro­vides the nec­es­sary political will, ev­ery de­crease of the av­er­age in­ter­est rate by 0.5 per­cent­age points on the govern­ment debt would save R11 bil­lion to R13 bil­lion per year. Fur­ther­more, the sur­plus of close to R100 bil­lion in the Un­em­ploy­ment In­sur­ance Fund can, and should, be used for mass pub­lic works pro­grammes that would tackle the prob­lem of un­em­ploy­ment. A pro­gres­sive govern­ment can­not pro­voke the work­ers and the poor by in­creas­ing VAT when they al­ready face high food prices. Fif­teen years of cuts in per­sonal in­come tax has been a fail­ure and govern­ment should be open and trans­par­ent about the ef­fect this pol­icy has had on ser­vice de­liv­ery be­fore turn­ing to a re­gres­sive tax such as VAT. With­out an­nual political tax cuts, per­sonal in­come tax would to­day give more than R180 bil­lion to the pub­lic purse. At the cur­rent rate of tax­dodg­ing among the rich, a new tax bracket for in­come above R1 mil­lion would sup­ply more than R5 bil­lion in rev­enue, not to men­tion the bil­lions that could be raised by ad­dress­ing cor­po­rate tax avoid­ance.

Th­ese rec­om­men­da­tions are just the be­gin­ning. Where there is political will, there are op­tions to aus­ter­ity. It is time to re­place the al­liance be­tween govern­ment and big busi­ness with one that is made up of the work­ers and the poor, and let the new al­liance guide eco­nomic pol­icy.

PHOTO: EL­IZ­A­BETH SE­JAKE

SET­TING THE TONE

Fi­nance Min­is­ter Pravin Gord­han will de­liver his bud­get speech on Wed­nes­day

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