A group of 122 economists and policy experts, called the Economists Initiative, and the Budget Justice Coalition (a coalition of important civil society formations) made submissions to Parliament last week in response to the Supplementary Covid-19 Budget tabled by Tito Mboweni on 24 June.
The Economists Initiative took the extraordinary step of calling for Parliament to reject the Budget and send it back for reformulation. The BJC comprehensively critiqued the Budget, and suggested that it was so regressive that it was probably unconstitutional. In their oral submission, the Economists Initiative suggested the Budget was tantamount to committing “economic suicide”.
The emergency Budget had been tabled ostensibly to give effect to the R500-billion package announced by the president on 21 April. The package had been widely welcomed as an important start to assist businesses, households and workers, although certain shortcomings had also been identified by the IEJ and others.
The Economists Initiative, BJC, and other submissions laid out how the Budget departed from the R500-billion package and strenuously opposed the brutal austerity package to be introduced over the next two to three years, involving cuts of more than R400-billion. The Institute for Economic Justice (IEJ) explained in clear detail how the Budget, which was supposed to take forward the R500-billion package, failed to implement the commitments contained in it. The most blatant example of this was that instead of implementing the R100-billion jobs package, the Budget contained a mere 6% of this promise. But the Budget fell short in virtually every respect: National Treasury had torn the guts out of the promised package.
In response to these criticisms, Director-General of Treasury Dondo Mogajane and his team made a number of startling claims: he told the committee not to be “deceived and misled” by the submissions, or be used as a “platform for false, misleading statements”; attacked the BJC and Economists Initiative inputs as being “politically motivated” and aimed at attacking Mboweni; said the submissions were empirically false and misleading”; that the BJC and Economists Initiative had falsely claimed that the president had committed to R500-billion in new spending; and that this was “the most expansionary Budget in years”, “massively counter-cyclical” and so on.
These were all blatantly inaccurate or provocative statements. It is unfortunate that such an important institution as Treasury appears to live in a parallel universe.
The statements of the DG were so offensive that the Chair of the Committee, Yunus Carrim, hauled him over the coals for wanting to dictate to Parliament how it should respond to civil society inputs. Carrim said this was outrageous and insulting. Interestingly, he observed that the DG is normally a mild-mannered man, creating the impression that he was instructed to make this attack by his political principal.
It is disingenuous for Treasury to claim to Parliament and the country that they have not embarked on an austerity path and that they are actually embarking on large countercyclical spending in response to the crisis. This is frankly bizarre when:
It is likely that we are looking at Budget cuts of as much as 10% of GDP, which is more than 10 times the size of new spending allocated to the rescue package. Cuts of this magnitude defeat the purpose of an emergency response. Intellidex has estimated that the likely drop in GDP in 2020, if the R500-billion rescue package were fully implemented, would have been 10%. However, they say without the rescue package being properly implemented the drop in GDP could be more than 16%. This is totally plausible.
Is the Finance Minister, or National Treasury, prepared to publicly debate these issues with civil society representatives, on a live platform of their choice, mediated by experts, so that the South African public can judge for themselves as to who is telling the truth on these matters?
There is little doubt in our minds that by embarking on this brutal programme of cutting back on resources available for delivery of basic rights to the population, the government is in violation of its constitutional obligations to progressively realise the socio-economic rights, which are outlined in the Constitution. Various statements make it clear that Treasury and government have not ensured the maximum use of available resources to protect the socio-economic rights of a population being brutalised by the effects of the Covid pandemic. There is a strong view therefore in civil society that the constitutionality of this Budget needs to be tested in court.
Debates over whether Treasury has indeed embarked on a massive austerity programme and whether the Budget fails to take forward the rescue package should consider the following questions:
There is a real, and probably justified, fear that the Treasury and hawks in the economic establishment are trying to use the crisis to justify the imposition of austerity and harsh structural adjustment measures which is similar to what has been done historically in various countries in times of crisis — what Naomi Klein calls the Shock Doctrine — which is to use the crisis as a cover to impose right-wing doctrinaire measures on the public under the cover of claiming to represent a solution to the crisis. This strategy has ended in tears globally.
On the details of the different elements of the rescue package, there is insufficient information, a lot of smoke and mirrors, and speculation. However, the evidence that we have does not look at all encouraging. Calculations by the IEJ and other academics and experts reveal that the wage support scheme at best will reach 50% of the workers who have been affected by non-payment of wages over this period. The Department of Social Development calculates that the food nutrition and food parcel programme by the end of May reached only about 12% of those who need the food, and we are suffering from food stress. The credit guarantee scheme has only reached a small fraction of businesses who need support as less than 10% of the promised amount has materialised. The special Covid-19 grant has reached at best 15% to 20% of its intended beneficiaries — this underscores the urgent need for the introduction of a universal income grant.
Many raise the issue of weak state capacity, and this is a legitimate concern which needs to be addressed. But the challenges of state capacity also need to be considered in the way in which programmes are designed and delivered, ensuring the simplest way to get support to households and businesses. The classic example is the adoption of a highly restrictive Covid-19 grant, which is exclusionary and complex to administer. A universal grant, on the other hand, gets grants directly to the intended beneficiaries and deals with targeting via the tax system. This is the type of bold thinking needed now.
Finally, while the economy has been opened up, it has not been done in a properly managed way. So it is very likely that we will see a massive second wave of infections making a second rescue package necessary. Given the posture taken by the government and Treasury, it is highly unlikely that they will be prepared to embark on such a rescue package.
A number of other countries have embarked on second and third waves of rescue packages as the need has arisen. Therefore, Treasury’s regressive stance is extremely worrying, both in the immediate term given the desperate assistance required by businesses, households, and individuals, and in the medium term, as the depression this profoundly mistaken strategy will create, will be so deep that there will be little prospect of building the new economy which the president speaks of.
We truly are on the edge of a precipice, which must be averted at all costs. DM
More was spent buying Central Park than in the purchase of Alaska.