Go­ing back t

Rad­i­cally re­duced scope for al­ter­na­tives con­fronts

Finweek English Edition - - Insight -

THE FIRST MEDIUM-TERM Bud­get pol­icy state­ment that Fi­nance Min­is­ter Pravin Gord­han will ta­ble next week will have some un­nerv­ing déjà vu un­der­tones for South Africa’s new ad­min­is­tra­tion. Es­ca­lat­ing pol­icy and per­son­al­ity ten­sions in the tri­par­tite al­liance, cou­pled with the con­straints of an un­favourable global eco­nomic en­vi­ron­ment, are poised to sow the same de­struc­tive dis­cord in the al­liance as in 1996, when Gov­ern­ment adopted the Growth Em­ploy­ment and Re­dis­tri­bu­tion (Gear) macro-eco­nomic frame­work.

The ANC’s left wing al­liance part­ners even­tu­ally used that to de­pose for­mer Pres­i­dent Thabo Mbeki and all those (read: for­mer Fi­nance Min­is­ter Trevor Manuel) who sup­ported the ex­er­cise in aus­ter­ity or the so-called “1996 Class Project”.

Cosatu econ­o­mist Chris Ma­likane agrees the po­lit­i­cal and eco­nomic stage is again set in a sim­i­lar way to 1996. “This Bud­get (MTBPS) will de­ter­mine the state of the class con­flict,” says Ma­likane, who warns Cosatu isn’t go­ing to set­tle for any­thing less than a rad­i­cal over­haul of macro-eco­nomic pol­icy.

Idasa’s Len Ver­wey – ed­i­tor of a new pub­li­ca­tion called Par­lia­ment, the Bud­get and Poverty in South Africa: a Shift in Power – says Gord­han’s task is an “ex­treme jug­gling act”. Gord­han, like Manuel in 1996, is faced with hav­ing to make choices within a dire global eco­nomic con­text that rad­i­cally re­duces the scope for pol­icy al­ter­na­tives. Sources close to Trea­sury point to the re­cent G-20 de­bates and ar­gue gov­ern­ments like South Africa are un­der in­creas­ing in­ter­na­tional pres­sure to start aban­don­ing cri­sis­driven fis­cal and mon­e­tary pol­icy (low in­ter­est rates and high in­debt­ed­ness).

Ul­ti­mately, that will mean that SA’s Gov­ern­ment spending will have to plateau from around 2010/2011. There will be no real term in­creases un­til eco­nomic growth picks up. In­ter­est rate cuts are al­ready on hold be­cause the SA Re­serve Bank re­mains un­will­ing to risk more, given the time lag in trans­mis­sion on mon­e­tary pol­icy.

But re­gard­less of what Gov­ern­ment views as con­straints to its fis­cal and mon­e­tary pol­icy – and re­gard­less of the fact Gov­ern­ment’s tax rev­enue will be down by R70bn or more by year-end, the ANC’s pre­dom­i­nantly very poor, mass vot­ing base has high ex­pec­ta­tions of what the new Gov­ern­ment is go­ing to achieve with the ex­pan­sion­ary poli­cies promised dur­ing its April elec­tion cam­paign.

Cosatu is “very con­fi­dent” Gov­ern­ment won’t make the same mis­takes it did in 1996 by bow­ing to in­ter­na­tional pres­sure and erring on the side of con­ser­va­tive aus­ter­ity in the face of “such mas­sive need and ex­pec­ta­tion”. Cosatu’s con­fi­dence is driven by new leg­is­la­tion that af­fords Par­lia­ment un­prece­dented scope to change Trea­sury’s fis­cal frame­work and Bud­get. Par­lia­ment will have to ap­prove the fis­cal frame­work Gord­han sets out in the MTBPS. Cosatu is con­fi­dent the Money Bills Amend­ment Pro­ce­dure and Re­lated Mat­ters Bill is ex­actly the tool needed to pre­vent an­other “1996 Class Project”.

DA shadow fi­nance min­is­ter Dion Ge­orge, who is ex­pect­ing a sober MTBPS view from Gord­han and an em­pha­sis on how lim­ited Gov­ern­ment choices are un­der the cir­cum­stances, says: “The fault line in the ANC al­liance is very vis­i­ble now and the de­bate (and vote) in the fi­nance com­mit­tee over the MTBPS will be very in­struc­tive as to whether san­ity is go­ing to pre­vail (and how much vot­ing sup­port

Cosatu can muster among MPs).”

While Gord­han has al­ready sig­nalled Gov­ern­ment won’t be shift­ing that frame­work in ways Cosatu ex­pects, and while it’s still un­clear how the new leg­is­la­tion will play it­self out in re­la­tion to the Bud­get process, Cosatu is gear­ing up to have max­i­mum in­flu­ence in Par­lia­ment and has gath­ered a group of “pro­gres­sive economists” and “other struc­tures” to do just that. Ma­likane says: “There’s a re­al­i­sa­tion in the ANC the pre­vi­ous strat­egy hasn’t worked. But there’s still a need to shift some mind­sets.”

Be­cause ANC MPs will ul­ti­mately do as Cab­i­net tells them, Cosatu’s mind­set shift in­cludes se­cur­ing more buy-in at Cab­i­net level. Cosatu has called on Pres­i­dent Ja­cob Zuma to give of­fi­cial clar­ity about how eco­nomic pol­icy re­mains the re­spon­si­bil­ity of Min­is­ter Ebrahim Pa­tel – a Cosatu de­ployee. It’s called on Zuma to change the Con­sti­tu­tion if nec­es­sary to trans­fer suf­fi­cient eco­nomic pol­icy power away from trea­sury to Pa­tel.

But Pan African Cap­i­tal econ­o­mist Iraj Abe­dian says, given the lim­ited scope for ma­jor pol­icy shifts in the cur­rent eco­nomic en­vi­ron­ment, Pa­tel is also poised to fall way short of Cosatu’s de­mands over time.

How­ever, over the very short term, Gov­ern­ment does have a small win­dow to buy a lit­tle al­liance good­will. While Gord­han has re­peat­edly in­di­cated pru­dent fis­cal pol­icy paths won’t be dumped he’s likely to con­tain some al­liance ten­sion by tabling an overly op­ti­mistic view in his MTBPS and then promis­ing to do all he can to main­tain Gov­ern­ment spending in his main Fe­bru­ary Bud­get. In the face of rev­enue col­lec­tion hav­ing fallen off a cliff, Gord­han will hon­our that com­mit­ment by push­ing the deficit out to around 8%.

While Cosatu is un­will­ing to say whether that’s far enough for them, Gord­han is ex­pected to cou­ple his com­mit­ment to main­tain­ing spending with an ex­press warn­ing about how that isn’t sus­tain­able (read: Bud­get cuts will be­come in­evitable) un­less Gov­ern­ment im­proves its ef­fi­ciency rad­i­cally and, more im­por­tantly, un­less there’s quick and suf­fi­cient eco­nomic re­cov­ery.

It’s a no-brainer: if growth doesn’t pick up and rev­enue doesn’t im­prove then of course spending will have to be cut. Per­haps, at best, not even in the sense of ab­so­lute re­duc­tions in al­lo­ca­tions but in the sense that few, if any, new ini­tia­tives can be fi­nanced. “The po­lit­i­cal di­men­sion is likely to come to the fore,” says Ver­wey.

Al­though Gord­han is ex­pected to recom­mit (ver­bally) in his MTBPS to the prin­ci­ples and pri­or­ity ar­eas of the ANC elec­tion man­i­festo and, there­fore, pa­per over the un­ease in the al­liance, there’s no way around the fact that at some point the chick­ens are go­ing to come home to roost. Ev­ery­thing that counts points to ten­sions in the al­liance in­creas­ing con­sid­er­ably over the medium term.

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