Just a little more on SA’s theoretically non-existent fiscal crisis — this is so important. The proponents of the idea that SA’s fiscal position is hunky-dory (this is a country two rungs down the “junk” status ladder) claim Treasury is cruelly trying to foist swingeing cuts in public expenditure.

It turns out that the tide in favour of ignoring the crisis may be rising (or maybe it is just more vocal), with more than 100 academics, economists, professionals and civil society organisations signing an open letter this week to President Cyril Ramaphosa and Finance Minister Enoch Godongwana calling for a halt to all planned budget cuts.

To make the argument that SA is not facing a fiscal crisis, the group has to indulge in some unusual logical footwork. It cannot, and does not, deny that government revenue is plummeting and government expenditure is exploding, which will leave a shortfall of about R60-billion this year. So, it cannot pretend there is no problem at all, but it can and does contend that the problem is being “overdramatised”, deliberately, it claims.

It cannot pretend that calling for more borrowing and tax increases, which is what the group proposes, is not fiscally questionable, so it pretends that increasing debt is in fact economically advisable, because you can “use the budget to boost economic growth”. And because the budget is such an obvious and logical tool for economic growth, its solution to the expenditure mismatch is to undertake a long-term expenditure review instead of this “mad budget slashing” that Treasury is apparently planning. (It isn’t.)

I have three problems with this approach. 

First, the obvious: just because a R60-billion budget shortfall is not unusual doesn’t make it normal. Or, for that matter, sustainable. A miss this big is terrible budgeting, which the left-wing economists and academics blame on Treasury, claiming they had the gall to include only a 1.5% public servant wage increase. But it wasn’t Treasury that agreed to the ultimate 6.5% increase in the wage negotiations, clearly with an eye to next year’s election. That accounts for about half the shortfall. It was presented as a fait accompli to Treasury, and Treasury would be irresponsible not to ask where they think the money is going to come from.

My second problem is this notion of using the budget as a growth catalyst. Of course, there are times when you want the state to kick-start demand; the idea is as old as the hills.

But so much depends on how you intend to achieve that end, what techniques you use, and what kind of boosting the economy needs right now to prime the pumps. What pumps do you in fact intend priming? The reason this is critical is because essentially what you are doing is extracting capital from the real economy over the longer term and injecting it into what we might call the unreal economy.

And in SA right now, trust me when I say the unreal economy is seriously unreal. Huge swathes of the economy are being run by people who don’t have the slightest clue about what they are doing. My favourite recent example is the Transnet executives, executives no less, who bought disposable straws for testing drunkenness at work from three “service providers” for R29 a straw. The cost price, the SIU later discovered, was 28 cents, not rands, per straw.

Transnet paid R33.8-million for straws, and the straws weren’t even delivered! Instead, about 1,000th of the number of straws contracted arrived. Well, the money was recovered and the “executives” fired. But this is just an illustration.

And third, this is the general problem with the idea of “using the budget to engineer growth”. Not only does it not work in SA, it tends to make the problem worse because it spews cash in exactly the places where it is most wasted and takes it from places it might actually be useful. The proponents of doing this think, I suspect, that money not grabbed by the state does not exist. It does. It just doesn’t exist for them, and that is their actual issue, not the fiscal balance.

The example in question is increasing public servant wages. God knows, I would love SA’s public servants to get paid more — who wouldn’t? But I would also like it if wage increases were commensurate with performance enhancement. But that is not what happens and, indeed, what is not designed to happen.

That’s not how the unreal economy works. In the unreal economy, there are no incentives to generate efficiency; there is no real responsibility for performance; there is little performance management of any description. Accountability is not to customers but to political bigwigs. You are rewarded not for delivery but for fealty. Paying people more to continue doing less may be many things, but it is not an economic growth strategy.

The proponents of fiscal irresponsibility pretend to be concerned about a growth strategy, but what they care about most is the government reducing the feed to their troughs. Actually, the fiscal crisis is not a consequence of Treasury scare tactics; it’s very real and reflective of a much larger malaise.

A growth strategy could always use public help, but, fundamentally, growth is driven by business confidence. When it works, the boost provided is precisely aimed at enhancing business confidence, not necessarily the welfare of public servants or any other state boondoggle. And trust me, business confidence is not going to be boosted at this point in time by even more budget profligacy. This is particularly so when the key components of a “using the budget to boost growth” strategy, the government’s largest parastatals, don’t have anyone running them at the moment.

The battle over the budget reflects a larger movement within the government in which Treasury is being sidelined in favour of spendthrift departments and the super-Presidency. If you don’t think that is a dangerous development, just hang on a bit, I think it will all become pretty apparent in time. DM