A better fiscal policy for better South Africa
- Mark Heywood
- 21 Mar 2016 11:23 (South Africa)
On 24 February Pravin Gordhan gave what many like to call a “workmanlike” budget. It had a fatherly and serious tone. It avoided too many measures directly hurtful to the poor, like an increase in VAT, possibly because of the proximity of local government elections.
However, to those who read between the lines, he signalled that the axe still has some swing in it. Whether austerity without austerity will satisfy the baying markets is the billion-dollar question that will be answered by a few men and women in New York and London.
However, even if Gordhan’s budget is able to sate the markets (and we hope it does) the underlying symptom of the social and economic crisis in South Africa, gross inequality, will have been worsened by it.
My impression is that while by no means an ideologue, facing a scarcity of well thought-out alternatives, Gordhan is bound to the quacks of failed economic prescripts, the sellers of relics, for economic solutions that are non-solutions. Long after it was discredited he seems to believe in a trickle-down theory, the idea that if government just makes the environment right for business then investment will flow once again - and with investment will eventually come jobs and a better life for the poor.
Based on the available evidence this seems highly improbable. That being the case I humbly suggest that a different approach to the budget was possible.
In the many thousand words of the budget speech, Gordhan mentioned the Constitution only once, listing it as among the “resilient institutional foundations of our economy”. The lack of emphasis seems to be evidence that the Constitution does not appear to have any sway over our economic or fiscal policy — something that remains governed only by good intentions and wishful thinking. This is despite the post-Nkandla consensus on the centrality of the Constitution to politics. In Thuli Madonsela’s words, “we live in a constitutional democracy, not a parliamentary democracy”.
The budget may be a little too amorphous to haul before the Constitutional Court, but this does not mean that it is not as bound to its prescripts, duties and obligations as our politics.
Why do I say this?
The Constitution is the supreme law of our land. Its Bill of Rights applies “to all law” including the Division of Revenue Bill, the thinking that goes into it and the policy it reflects. In its Preamble, it refers to its purpose as being to establish a society based on “social justice”, improving the quality of life of all citizens and “freeing the potential” of each person.
To make this vision possible it commits all governments led by any party, be it the EFF, DA or ANC, to a duty to “progressively realise” most socio-economic rights (housing, health, food) taking into account our country’s available resources.
With some rights, particularly those that pertain to children and education, the Constitution goes even further and requires that we do everything possible to ensure their immediate fulfilment. The Supreme Court of Appeal (SCA) confirmed this as recently as December 2015, when it handed down judgment on the right of every single pupil in South Africa to necessary textbooks.
The Constitution also requires that all public administration be “development-oriented”, that “people’s needs be responded to”, and so on.
If the Constitution is really our “supreme law” then social (not just economic) progress is the yardstick by which both government and citizenry should assess the budget and fiscal policy, not just the measures demanded by Standard & Poor's or Moody’s. The bottom line is this: in South Africa even the markets are bound by the Constitution. This is not to say that we can ignore our investors, but neither should we ignore our Constitution. A dialogue is necessary with them as well.
Does the 2016 budget, drafted to assuage the looming spectre of a ratings downgrade, pass this test? I would argue not. Examples from the budget allocated to health services and basic education should make my point.
Prescribing health and education
As per the Constitution, when it comes to people’s rights of access to healthcare services the Treasury is under a variety of legal obligations. Overall it must continually and progressively improve health services (which means healthcare services should never deteriorate). But in some areas the duty is more onerous: for example the rights of children to “basic nutrition” and “basic health care services” should be fulfilled in the shortest time possible.
In a country where children are dying of severe acute malnutrition this is clearly not happening.
Yet although in 2016/17 the health budget will grow overall by 7.06%, in some critical areas it has shrunk significantly. Money for provincial hospital services is down by 2.65%; money for “other health services” is down 11.7%. Of course we are grateful for the additional money for HIV and TB, but more and more we see how people with diseases like cancer or mental illness are starved of services and medicines.
The same is true of the spending on basic education. The budget is up, but — unless there is a ruthless war on corruption and mismanagement in the education system — the amounts allocated will fail to meet the need. In Limpopo, for example, the per capita amount allocated to each quintile 1 (no-fee) school for its “norms and standards” costs should be R1116. But it is actually 47% less. Schools cannot function on this basis.
In a time of crisis, what the Minister of Education now terms a “catastrophe”, the budget seems to signal more of the same.
The Treasury’s response to my criticism may be that the Constitution requires the impossible — that there is simply not enough money in the fiscus to fulfill all these duties. As a result, Gordhan would tell us, the object of fiscal policy is to grow the economy so as to be able generate revenue to invest in people again.
But such an answer is unconvincing because at the heart of SA’s economic and fiscal crisis is the puny size of the domestic consumer market. No economy will grow meaningfully whilst the vast majority of its people lack the capacity to purchase goods or are denied the possibility to become taxpayers. A strategy that seeks to grow investment but may inadvertently shrink the market exacerbates this contradiction. Therefore how we expand our market — also meaning how we overcome unemployment — should be seen as SA’s number one challenge, and in this respect too the Constitution might be of help to us.
As a pointer to how to get out of this impasse Gordhan might want to look to where minimum levels of expenditure are mandated by the Constitution. Then he might incline to take a longer view and look downstream to the benefits that will accrue from upfront investments.
Basic education is the best example. In December 2015 the Supreme Court of Appeal said, “It cannot be emphasized enough that basic education should be seen as the primary driver of transformation.”
In his budget speech Gordhan reflected this view when he stated, “improvements in the quality of education are the foundations of broad-based growth, productivity improvement and sustainable growth”.
However, the numbers don’t bear out this sentiment. In real terms there is less money for textbooks, nutrition and school infrastructure in the year ahead.
So, what if the government did take its constitutional obligations seriously?
What if a policy decision was made to ensure that all schools had the necessary teachers, security guards, cleaners, administration staff, transport, textbooks and toilets? What if an urgent, targeted and time-bound plan was implemented to root out the billions of rands lost to corruption in the education system? What if there was a medium-term plan which was hatched to shift public expenditure from social grants to employment in the education system?
On the subject of social grants, a wise finance minister should puncture the lie that social grants are a signal of the government’s success. They are not. The money spent on grants is a necessary evil. Although it adds up to a large slice of our budget at an individual level, it amounts to crumbs for families who have been decapitated by the unemployment of potential breadwinners. The old age, disability and care dependency grants (now “rising” to a meagre/pathetic R1,500 per month, R350 a month and R890 a month respectively – whoopee!) may prevent mass starvation. But they do not staunch hunger or malnutrition.
They do not bring dignity.
Such pitiful amounts of money do nothing to economically enable the recipients. They do not stimulate local economies. In reality, the R170-billion allocated to grants is commendable but unsustainable.
Would a plan to enhance employment in education, wage war on corruption and reduce the number of people dependent on others’ social grants not be good for the economy as well as the pupil?
Once upon a time, way back in the 20th century, there existed an economic theory called Keynesianism. It was discredited not because it was entirely wrong but because, on the right, the ideologues of neoliberalism needed to unfetter the markets from an accumulation of social obligations; and, on the left, a better life under capitalism was considered to be the great sin of reformism. Neither side’s beliefs could accept such heresies; they required that Keynesianism be discredited rather than built upon. It’s time we re-thought this.
Put money in our pockets
Taking into account his constitutional obligations, the Minister of Finance has in his hands several cards that could increase the spending power of the consumer — without the money coming from the coffers of the Treasury. There are at least three ways I can think of how this could be done.
The Competition Commission’s Health Market Inquiry is currently exposing excessive pricing of health services in the private sector. Endorsing reasonable price regulation and linking this to National Health Insurance (of which Gordhan said very little) could save users of health services over R21-billion per annum in out-of-pocket expenditure.
We all know that in August 2016 a tsunami of rising food prices will hit the poor. What defences are we putting up to prepare for this? What of the Constitutional promise of “sufficient food”? Given the success of the Health Market Inquiry at probing profiteering from people’s health needs, would Gordhan kindly ask the Competition Commission to investigate the excessive pricing of some essential food stuffs, which is contributing to mass hunger and malnutrition? This would also save some money for Dr Motsoaledi, who must manage the burden of poverty-induced ill health on his shoestring budget.
Surprisingly, given how strongly he feels about it, Gordhan said very little about corruption. But here is an area where billions and billions of rand are being diverted from the poor into the hands of predators. Getting this money back could tangibly improve public services and the realisation of some rights without having to increase public expenditure.
By my crude estimations, if the government was willing to countenance measures such as these within a few years they could put R150-billion per annum back into the pockets of the poor and middle class. For the desperately poor, such measures would mean, for example, that pitiful social grants could buy more food.
So what is to be done? At the inaugural meeting of the unimaginatively named Socio-Economic Future of South Africa (SEFSA) earlier this month, delegates agreed on the need to rediscover the “we” rather than the “me me”; a new social contract was suggested.
The good parts of our government, Gordhan included, should seize on this idea. We should invite business, labour, government and civil society to join in an inequality eradication exercise. Such a compact should aim at finding money for constitutional investments, including by restraining corporate pay, restructuring the public sector wage bill by reducing the inflated managerial bureaucracy, eliminating corruption and appealing to overseas investors to support this exercise in the interests of human rights and equality – things that are vital to the medium-term stability of South Africa’s society and economy.
Hardly 20 years ago South Africa was a country that stood on the world stage as a moral giant. It had the power to send a different signal to the markets, a signal that valued human investment. Had it done so, it could have told the market that it was only following the instructions of the Constitution, a supreme law that was celebrated uncritically by the very same markets at the time it was signed by Nelson Mandela. Billions of people would have clapped on the sidelines as we started a war on poverty.
With a government now tarnished by integrity failures, callousness, greed and murder, this is less easy, but not impossible. Yes, it will be hard to do this with a greedy and fat king surrounded by lecherous and avaricious acolytes. But that’s why it is now the time for all good men and women to make their voices heard.
Could this please be food for thought this human rights day? Empty promises have lost their allure for empty stomachs. DM