Es­cap­ing the yawn­ing abyss

We’re all go­ing to take a ma­jor hit to re­verse our for­tunes

Weekend Argus (Saturday Edition) - - FRONT PAGE - CRAIG DODDS

DON’T look down.

That is what they say you should do when stand­ing on a ledge above a bot­tom­less chasm.

In­stead you should fo­cus only on get­ting safely off the ledge.

It’s not clear whether Fi­nance Min­is­ter Pravin Gord­han has ever climbed Ever­est but he has the climber’s in­stinct for keep­ing his eye on the sum­mit, not the abyss be­low.

Be­cause a ledge is pretty much where the coun­try finds it­self right now, po­lit­i­cally and eco­nom­i­cally.

Gord­han, whose job is not for ex­citable tem­per­a­ments, pre­ferred to call it a cross­road.

The num­bers in the Medi­umTerm Bud­get Pol­icy State­ment tell their own story, of how low growth has eaten into gov­ern­ment rev­enue, com­pounded by the shrink­ing of the tax base, un­der­min­ing ef­forts to close the gap be­tween what the state col­lects in rev­enue and what it spends, in or­der to bring bor­row­ing un­der con­trol.

There is al­ready ev­i­dence of how the brakes ap­plied to gov­ern­ment spend­ing since 2012 have reined in growth in the pub­lic ser­vice head­count – which cor­re­lates with anec­dotes from around the coun­try of schools that have been forced to trim teach­ing and sup­port staff.

And that is be­fore even more vig­or­ous belt tight­en­ing takes ef­fect next year, when ex­pen­di­ture re­duc­tions climb to R20 bil­lion, on top of the R25bn im­posed over the past two years, fol­lowed by R31bn in 2018/19.

The gov­ern­ment will re­duce the op­er­at­ing bud­gets of all de­part­ments by 1.1 per­cent over the next three years and trim trans­fers to pub­lic en­ti­ties by R5.6bn, large con­di­tional grants by R6.4bn and pro­vin­cial eq­ui­table shares by R1.58bn, to re­alise R18.7bn in sav­ings.

Among the grants af­fected are those sup­port­ing maths, sci­ence and tech­nol­ogy, ed­u­ca­tion in­fra­struc­ture, health fa­cil­i­ties, com­mu­nity li­braries, hu­man set­tle­ments devel­op­ment, agri­cul­ture, pub­lic trans­port, wa­ter ser­vices in­fra­struc­ture, mu­nic­i­pal in­fra­struc­ture and ur­ban set­tle­ments devel­op­ment.

In some cases these grants have been un­der­spend­ing any­way, so the cuts may not do much dam­age. But a com­bi­na­tion of above-in­fla­tion salary in­creases and a cap on per­son­nel bud­gets means some­thing will have to give in ed­u­ca­tion, health and polic­ing and there will be job losses.

Pro­posed new tax mea­sures, on the other hand, add up to R43bn over the next two years, with the big­gest hit com­ing next year in the form of R28bn in ad­di­tional rev­enue to be sought by the state.

But the real con­cern is eco­nomic growth, not only be­cause it has con­sis­tently made fore­casts seem naively op­ti­mistic, but be­cause, as the Trea­sury points out in the MTBPS book­let, trend growth – the long-term av­er­age – has dropped from 4.3 per­cent be­tween 2000 and 2008 to 2.1 per­cent be­tween 2010 and 2018 (if fore­casts hold).

That spells trou­ble for a coun­try with an un­em­ploy­ment rate equiv­a­lent to a hu­man­i­tar­ian dis­as­ter and a youth bulge de­liv­er­ing in­creas­ingly larger waves of school leavers on the des­o­late shores of a stunted post-school ed­u­ca­tion and train­ing sys­tem and a job mar­ket es­pe­cially hos­tile to lowskilled en­trants.

The rea­sons for this drop in trend growth can be found, among oth­ers, in an 11.3 per­cent fall in fixed cap­i­tal stock be­tween 2008 and 2015, other­wise known as dein­dus­tri­al­i­sa­tion.

Whether this re­treat of cap­i­tal in­vest­ment should be laid at the door of de­pressed com­mod­ity prices, elec­tric­ity sup­ply con­straints since 2008, or shattered busi­ness con­fi­dence, or all of the above, is a mat­ter for de­bate, but it is clear that un­less the in­vest­ment trend is re­versed, the growth trend will re­main stuck around 2 per­cent.

What is more, the en­tire ed­i­fice of Gord­han’s del­i­cately bal­anced fis­cal con­sol­i­da­tion plans is pred­i­cated on growth sur­pass­ing the 2 per­cent mark some­time in the near fu­ture.

Fail­ing this, the Trea­sury warns, even ex­ist­ing spend­ing com­mit­ments will come un­der threat as it be­comes ever harder to con­trol ris­ing debt, the costs of which are al­ready the fastest­grow­ing item in the bud­get.

This is a po­lite way of warn­ing that the dreaded fis­cal cliff looms – which could im­pose se­vere cuts on so­cial spend­ing and gov­ern­ment bu­reau­cracy – un­less growth picks up soon.

So while there have been howls in some quar­ters (those that sup­port Pres­i­dent Zuma’s view that there was “noth­ing wrong” with his mad­cap shuf­fling of fi­nance min­is­ters in De­cem­ber) over the ab­di­ca­tion of sovereignty im­plicit in at­tempts to stave off a rat­ings down­grade, the real loss of sovereignty would come if South Africa, like the “sev­eral African coun­tries” men­tioned in Gord­han’s speech, were forced to go beg­ging from in­ter­na­tional fi­nan­cial in­sti­tu­tions for as­sis­tance.

That as­sis­tance would in­evitably come with con­di­tions at­tached, the rav­ages of which coun­tries like Greece can at­test to.

All of the pain im­plied in the num­bers Gord­han put on the ta­ble will have to be borne by a coun­try at odds with it­self and whose pa­tience has run out.

Stun grenades and wa­ter can­non out­side Par­lia­ment as po­lice drove #FeesMustFall pro­test­ers from the precinct punc­tu­ated the af­ter­noon of his speech.

So while the num­bers mat­ter and have con­crete im­pli­ca­tions for what it will feel like to live in this coun­try for the next few years, what mat­ters more is the in­tan­gi­ble el­e­ment the min­is­ter men­tioned four times in the speech: con­fi­dence.

With­out it busi­nesses will not in­vest the R600bn in idle cap­i­tal they have built up over the “wait-and­see” years of Zuma’s pres­i­dency, growth will not breach the 2 per­cent ceil­ing, the youth will be stranded in an eter­nal pur­ga­tory of job­less­ness.

In ma­te­rial terms this MTBPS was about in­still­ing con­fi­dence in the state’s abil­ity to main­tain spend­ing dis­ci­pline in the face of the grow­ing de­mands of a peo­ple weary of hard­ship. It was also about lever­ag­ing that con­fi­dence to keep debt costs through­out the econ­omy as low as pos­si­ble, to fa­cil­i­tate in­vest­ment. “Be­cause gov­ern­ment debt is the ref­er­ence price for the rest of the econ­omy, lower gov­ern­ment bond yields will re­duce bor­row­ing costs across the econ­omy,” the Trea­sury noted.

But above all Gord­han’s speech was about in­still­ing the be­lief the na­tion (and his own party) patently needs to re­dis­cover – in it­self, its val­ues and the in­sti­tu­tions be­queathed by its con­sti­tu­tion.

This will re­quire the vi­sion and lead­er­ship of some of the great his­tor­i­cal fig­ures the min­is­ter quoted, along with their dis­ci­pline and sac­ri­fice, not only from po­lit­i­cal lead­ers, but from busi­ness, labour, civil so­ci­ety and or­di­nary cit­i­zens, in­clud­ing the stu­dents.

“We must in­ten­sify the na­tional di­a­logue to seek com­mon so­lu­tions and con­crete ac­tions to slow growth and poverty. Just as in our his­toric past, we need a col­lec­tive, con­certed ef­fort. We must let hope and re­silience tri­umph over de­spair and di­vi­sion. It’s up to us,” Gord­han said. Or, as he quoted from Martin Luther King: “Hu­man progress is nei­ther au­to­matic nor in­evitable… Ev­ery step to­ward the goal of jus­tice re­quires sac­ri­fice, suf­fer­ing and strug­gle; the tire­less ex­er­tions and pas­sion­ate con­cern of ded­i­cated in­di­vid­u­als.”

Or, as the min­is­ter put it more pithily, we’ll all have to “work like hell”.

In the mean­time, don’t look down.

PIC­TURE: JEF­FREY ABRA­HAMS

Min­is­ter of Fi­nance Pravin Gord­han in the Na­tional As­sem­bly where he de­liv­ered his Medium-Term Bud­get Pol­icy State­ment on Wed­nes­day.

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