Escaping the yawning abyss
We’re all going to take a major hit to reverse our fortunes
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.
Minister of Finance Pravin Gordhan in the National Assembly where he delivered his Medium-Term Budget Policy Statement on Wednesday.