Last week, the World Bank’s announcement that it cut its economic growth forecast for South Africa to below 1% highlighted the dire state of our economy. The World Bank expects that in the coming year, the South African economy will only grow by 0.9% and a leading driver of this revised forecast is the position of Eskom, which continues to subject the country to rolling blackouts.
Eskom aside, the country also continues to grapple with a policy climate that is simply not unlocking any key prospects for economic growth. The National Development Plan (NDP), is so far behind on its goals that the current government will either begin revising it, or ensure that a new strategy will be introduced before 2030.
Finance Minister Tito Mboweni also kicked off the year highlighting the need for economic change. In a series of tweets, he emphasised the need for structural economic reforms in the country and directed South Africans to review the strategy released by National Treasury last year.
While definitely a step in the right direction, the strategy released by the treasury is unlikely to go the distance in instituting the type of structural reform that South Africa is actually in need of. While clearly enjoying himself on Twitter, the finance minister also tweeted about the possibility of legalising the cannabis industry, highlighting the potential tax benefits.
This is somewhat revealing because it points to a pervasive type of policy thinking that exists within the ANC government, namely a desire to continually grow tax revenue. Over the past couple of years, the value-added tax (VAT) rate was increased and a sugar tax was introduced along with a carbon tax bill. Neither the sugar tax nor the carbon tax bill emerged from a strong commitment, or belief that these taxes were about improving health outcomes, or environmental preservation. It was almost taken for granted that they would be accepted and that the tax coffers could be expanded.
The tax money generated from the sugar tax certainly isn’t being allocated to any project, or programme with the goal of advancing healthier diets and the income generated from the carbon tax bill is not going into any carbon fund. All these funds are merely being channelled into the general fiscus to be allocated and spent each year.
When a key driving principle behind your policy planning is to continually look towards increasing the money collected from your taxpayers, you have a problem. This is a poor basis for policy and for stimulating growth. The more you tax citizens, the less likely they are to spend. With the government managing the funds they receive so poorly, you are also likely to merely inspire resentment from your tax base, fueling increased attempts at tax avoidance. You will ultimately tax citizens into oblivion and it will come at the expense of economic growth.
The finance minister may, or may not have been offering his comments about the legalisation of cannabis in jest, but the fact that he mentions the potential tax revenue is telling. The departure point for thinking about growth in South Africa cannot move from the position of saying it means more revenue for the government.
In fact, the current tax burden facing South Africans is likely a key factor hampering growth in the country as many South Africans have resorted to using private services for healthcare, schooling, security and other services the state is failing to provide adequately.
Although there is constant talk about the need to drive and stimulate economic growth, the current thinking always seems to place the government at the centre of it from a policy perspective and thereafter comes the actual people and individuals.
In the words of Ronald Reagan: “Government’s view on the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it.”
The policy principle through which the ANC government moves is that the state should be a key player in the economy. In many cases, not just a key player, but a dominant player.
There is this fundamental ideological belief that the government should constantly do more and expand, and finally matters will come right, in time, and after spending a few more billion. It is believed with a type of religious zealotry. It is why the government continues to cling to South African Airways (SAA) despite years upon years of failure.
To sell off SAA is to admit failure and to admit state failure is somewhat abhorrent to our government. Instead, a cloud of delusion is introduced whereby SAA is continually funded year after year and you try to convince the public that at some point, it will be successful through one of the many turnaround plans.
The same delusion is used to avoid introducing significant changes at Eskom, all while the power utility continues to bleed the country’s economic growth. It seems that it would be ideologically repugnant to admit the need to open up the country’s energy market to allow more competition in the supply of electricity. Far better to just operate under a cloud of delusion.
Now the country is faced with the prospect of National Healthcare Insurance (NHI), which again stems from this self-righteous policy belief that government will ultimately save the day and create amazing healthcare for all, while conveniently ignoring the current disastrous public healthcare that is on offer – a system which has been in decline for years and has been allowed to deteriorate.
There is zero evidence that NHI will be managed correctly as all the evidence of similar state-run institutions highlights how poorly they are run. There is no shining example of governance on which to model the NHI. Yet the fact that no such evidence exists is largely irrelevant. If the departure point of your policy is that government will always act in the best interests of the people, you don’t need evidence. If you can delude yourself to the point where you ignore all the instances of blatant government failure, then you don’t need evidence. All you need to do is get other people to buy into the delusion.
In 2018, I had the opportunity to interact with state representatives in Arizona, in the US. I asked them about their policy approach and thinking regarding autonomous vehicles. Their response was refreshing. They openly admitted they had no idea how to regulate these vehicles nor a strong understanding of how the software worked. For the time being, they were allowing autonomous vehicle testing in Arizona in order to better understand the space and would thereafter give thought to legislation. Their approach was simply one of saying they are hands-off until they feel confident enough to create useful legislation. No need to delude themselves into thinking they know what is best.
Such an approach isn’t ideological, or self-righteous, it is purely practical – an acknowledgement and undertaking to learn more about the sector before assuming you know what the way forward should be.
It is a policy approach that is desperately needed in South Africa. Instead of identifying a new growing sector and thinking about tax collection, rather explore how growth in that sector can be enabled. Instead of continually looking to regulate various aspects of the economy, why not examine what areas need deregulation? While you are at it, stop looking to expand the state into areas where it has no track record of performance and rather look at where state involvement can possibly be reduced.
The current approach to national policy in South Africa comes from a mixture of fervent self-righteousness mixed with a heavy dose of delusion and it is not advancing significant change in the growth of this country, or the lives of its citizens. DM