Al­liance’s jump to the left

Re­lief mis­placed given wor­ry­ing rec­om­men­da­tions

Finweek English Edition - - Openers -

AF­TER THE RELEASE of his mini-Bud­get on 21 Oc­to­ber, Fi­nance Min­is­ter Trevor Manuel told jour­nal­ists that there would be no seis­mic shifts in Gov­ern­ment’s eco­nomic pol­icy. That com­ment im­plies the de­ci­sions reached at the tri­par­tite al­liance sum­mit this month won’t be­come pol­icy, as many of the rec­om­men­da­tions can be de­scribed as seis­mic shifts to the left.

The al­liance – the ANC, Cosatu and the SA Com­mu­nist Party (SACP) – met on 17 and 18 Oc­to­ber. They said in their dec­la­ra­tion the fo­cus of the sum­mit was to “con­sol­i­date the eco­nomic pol­icy per­spec­tives that will in­form our com­mon elec­tion man­i­festo”.

Many pri­vate sec­tor economists are re­lieved the sum­mit dec­la­ra­tion fails to come out against Bud­get sur­pluses and fails to set a tar­get for a big Bud­get deficit. Sim­i­larly, there’s re­lief be­cause the dec­la­ra­tion fails to at­tack inflation tar­get­ing ex­plic­itly. That de­spite SACP gen­eral sec­re­tary Blade Nz­i­mande talk­ing in favour of a Bud­get deficit of 3% of gross do­mes­tic prod­uct and men­tion­ing 9% as a more ap­pro­pri­ate level of inflation than the cur­rent 6% up­per limit of the tar­get.

But the al­liance dec­la­ra­tion con­tains some rec­om­men­da­tions that have se­ri­ous im­pli­ca­tions for both the fis­cus and the SA Re­serve Bank. For the fis­cus, there’s a rec­om­men­da­tion for a ba­sic in­come grant (BIG), which would be “linked to skills de­vel­op­ment”. The dec­la­ra­tion doesn’t say how the link would be im­ple­mented but does say a num­ber of its pro­pos­als on so­cial pro­tec­tion re­quire fur­ther dis­cus­sion.

The pro­posal for a BIG isn’t new. What is new is that the ANC seems now to have en­dorsed it. Many an­a­lysts cal­cu­late im­ple­ment­ing a BIG would put tremendous strain on SA’s fis­cus. In 2002, Stel­len­bosch aca­demic Ser­vaas van der Berg found that a BIG of R100/month at the time would cost Gov­ern­ment R54bn. A fur­ther R10,8bn would need to be added for ad­min­is­tra­tive costs. To get some idea of the scale of the BIG in 2002 you need to set that R54bn cost against the Bud­get deficit of around R42bn pro­jected for the next fis­cal year.

Cosatu sug­gested in ear­lier de­bates that the BIG be fi­nanced through rais­ing the in­come tax of the rich. Van der Berg found its sug­ges­tions im­plied the top mar­ginal tax rate would have to be in­creased from 40% to 66%.

The al­liance’s dec­la­ra­tion also called for a flat ben­e­fit for un­em­ployed work­ers whose Un­em­ploy­ment In­sur­ance Fund has ex­pired. Here, too, fur­ther dis­cus­sion is re­quired. No men­tion is made of how that ben­e­fit would be fi­nanced. The dec­la­ra­tion sim­i­larly calls for a na­tional pen­sion scheme.

Two years ago, Manuel him­self mooted the in­tro­duc­tion of a manda­tory State-run pen­sion scheme. The idea was con­tro­ver­sial and ne­go­ti­a­tions be­tween labour, busi­ness and Gov­ern­ment on the is­sue have stalled. There’s some dis­agree­ment over whether the in­vest­ment of the manda­tory pen­sion con­tri­bu­tions would be man­aged by the State or by pri­vate as­set man­agers.

Sig­nif­i­cantly, Manuel’s pro­posal con­tained the sug­ges­tion of a wage sub­sidy, which at the time would cost R20bn and be fi­nanced by re­dis­tri­bu­tion from wealth­ier em­ploy­ees to poorer work­ers who can’t af­ford the manda­tory sav­ings the State pen­sion scheme re­quires.

There are other far-reach­ing pro­pos­als in the al­liance dec­la­ra­tion un­der the sec­tion en­ti­tled “Com­pre­hen­sive so­cial pro­tec­tion”. For­tu­nately, those are all up for fur­ther dis­cus­sion.

SA’s fis­cus will also be af­fected by the al­liance’s sug­ges­tions about in­dus­trial pol­icy, which the dec­la­ra­tion re­gards as mas­sively im­por­tant for the fu­ture growth of SA’s econ­omy. The dec­la­ra­tion fore­sees “a ma­jor shift and up-scal­ing of in­dus­trial pol­icy with sig­nif­i­cant ad­di­tional re­sources, com­ple­mented by a more ef­fec­tive man­age­rial and im­ple­men­ta­tion ca­pac­ity”.

Free mar­ke­teers dis­like in­dus­trial pol­icy be­cause it im­plies Gov­ern­ment bu­reau­crats are able to in­ter­vene ef­fec­tively in the mar­ket through tax in­cen­tives and sub­si­dies to steer spe­cific in­dus­tries to suc­cess. It’s true that many suc­cess­ful Asian economies used in­dus­trial pol­icy, but the world is a changed place and many of the in­cen­tives they used are no longer al­lowed by the World Trade Or­gan­i­sa­tion. It’s no se­cret Manuel isn’t a fan of in­dus­trial pol­icy, as has been ob­vi­ous from the pal­try amounts he’s bud­geted to sup­port the pol­icy in the past.

The al­liance dec­la­ra­tion says in­ter­est rates and ex­change rates “need to be cal­i­brated to take ac­count of in­dus­trial pol­icy im­per­a­tives. This will re­quire, among oth­ers, a dis­cus­sion on the man­date and prac­tices of the Re­serve Bank to in­clude con­sid­er­a­tions of em­ploy­ment and eco­nomic growth in ad­di­tion to the man­date on price sta­bil­ity”. That’s a highly con­tro­ver­sial sug­ges­tion, as most pri­vate sec­tor economists be­lieve a dual man­date for the Bank will weaken the fight against inflation.

Wants a big­ger bud­get deficit. Blade Nz­i­mande

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