Budget 2013 – The New Is Not Yet Born

Does the Budget have the right toolkit?
Antonio Gramsci, the influential communist writer, has a quote that when applied to the National Budget, tells a story of government adopting a “holding position” when more direct and deliberate action is needed to tackle what the African National Congress refers to as triple  challenge – unemployment, inequality and poverty. The quote is:

The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.

Hard Realities Of Budget 2013

The National Treasury has produced a fiscal framework that could be considered a “holding position” that is simply not good enough to meet the goals of the reducing poverty, inequality and unemployment. The 2013 fiscal framework is understood to reflect three factors:

  1. The slowdown in revenue collection due to impacts of the economic recession; 
  2. Increasing levels of non-compliance in people and companies paying taxes; 
  3. Attempt to balance economic relaities with the need to prioritise programmes. In fact, Minister Gordhan was emphatic in the press conference stating that “This government will never implement austerity measures.”

In fact, under President Jacob Zuma there has been significant reprioritisation of several departmental votes. The Department of Trade and  Industry, Department of Rural Development and Department of Higher Education are examples of government linking spending to play a role as a developmental state. In the case of the DTI, this has been focussed on establishing the special economic zones, and in the case of Rural Development through government buying land. In Higher Education department the focus has been on widening opportunities for young people through expansion of the Further Education and Training sector. For its part, Treasury has played a role of tightening up the official rules of the game, but more importantly through stimulating debate on youth unemployment.

The Old Lingers

So far so good, one might think. However, the new is taking time to emerge. There is wide social agreement that fiscal policy should be  subjected to wider social forces, which means breaking the insularity that traditionally characterised the National Treasury. Minister Gordhan  has indicated that the “long term fiscal plan” is being developed, together with associated reviews on taxes and expensiture. The problem is  that the commitment has already been made in the 2012 budget speech, and progress in this regard has not been publicly visible. The intention is foundational to our commitments to meeting the goals of a more equitable society for three reasons:

  1. Expenditure on programmes aimed at social mobility and economic inclusion are facing pressures due to tax collection rates falling, and we face the possibility going forward 
  2. Big programmes like the National Health Insurance and the infrastructure programme associated with the Presidential Infrastructure Investment Committee will require funding. 
  3.  The deficit cannot grow much higher and more importantly, not quickly enough to support an increasingly expansive role for government. 
  4. The deeper danger is that in our exuberance to build a developmental state we could enter into a debt trap in the next two decades. Whilst, public service capacity to deliver has improved

These contextual factors sit cheek-by-jowl with values of transparency and what Minister Gordhan calls “cost sharing” (which I understand to
mean more than the joint financing of projects, but more expansively that government – society partnerships need to be created).
Yet, the old lingers. The question is why?First, it is vital to recognise that after 18 years of democracy there has been patterns of expenditure that reflect soft captures of state resources. We are not talking about corrupt capture, but rather informal rules that have become embedded. For instance, the Department of Defence spend R 4,3 billion in the 2012/13 financial year on contractors. In the current financial year, this budget estimate is cut by 2 billion rands. The decrease of just under 100% in spending on defence contractors is laudable, and a major step in the right direction. However, it  still R 2 billion. In comparison, structures such as The Jobs Fund and the Small Business Finance Entity (SEFA) have similiar budgets, but have much more important goals to acheive. In the detail of the budget there are other soft captures of state resources, most recently highlighted by the extensive usage of consultants in the public service.
Second, there is a lack of political spade work. Structures like NEDLAC are unjustifiably criticised for not creating a “social compact”, when in  fact the reasons are simply a lack of building structures and systems that build confidence between the parties. As an example, there is a draft  fiscal guidelines document from previous years, that requires extensive debate. A process similar to that being undertaken on the youth employment subsidy needs to be pursued on fiscal policy. There is no doubt that the debate will be contentious, however the outcome is worth engaging in the debate. As an outcome it would commit our society to protecting spending aimed at reducing poverty, inequality and unemployment in ways that translate commitments into a binding framework. The example of the National Health Insurance and the Community Works Programme – which have built wide social support – provide an example of deliberate political work.
Third, the reforms of the budget system to support parliamentary oversight are very new, with the Budget Office only recently established. The importance of the reforms is that it provides civil society with a much deeper engagement process around the budget. The challenge though is that the underlying debate on fiscal strategy are not resolvable in an ideological sense. The debate refocussed on linking rands to prioritise are however resolvable.
Fourth, as the global economic crises has shown South Africa is intertwined with developments across the globe, and that the globe is increasingly volatile. In fact, some pessimistic accounts of the future of global economy suggest that growing volatility is likely to become – in the parlance of management consultant -the “new normal”. In such circumstances, having a guiding policy is vital to guide coherent implementation plans.
Fifth, moving towards 7% economic growth is a tough task. There are in fact no easy answers on how we accelerate economic growth, but the prospects are enhanced with certainty on the long term fiscal strategy. It potentially provides a means to leverage private sector investment as  it would provide certainty, but perhaps more importantly highlight the “pipeline” of projects and reforms that are in place. Even more importantly, it levels the playing field making for civil society organisations campaigning on social and (as recent history shows) on economic inclusion programmes. Simply stated, it provides a way to unpack the framework for inclusive economic growth.

Can the “new” be accelerated?

The idea of a “crises” is central to political theory on building social compacts. The recent events in mining, high levels of social unrest, unease in the private sector over new mining regimes, suggest that the crises has become more visible, more real and a more commanly held view. In a sense we have realised that the crises is on our door steps.
In addition, the National Treasury has laid a foundation. There have always attempted to reprioritise spending, but under the watch of  Minister Gordhan the focus on detail has been impressive. The learning will come in handy, as it provides the basis for a fiscal framework to develop guidelines to cut fiscal spending on wasteful expenditure.
Most importantly, though it is remind ourselves of another quote from Antonio Gramsci on the fable of the beaver:

The beaver, pursued by trappers who want his testicles from which medicinal drugs can be extracted, to save his life tears off his own testicles.

We could be like the beaver through a debt trap, social unrest trap, and even a private sector investment strike.
It is a scary prospect that in each of these traps could emerge, and even simultaneously,  if we are unable to proactively talking about the future in a much more detailed manner. In that context, agreeing to deficit and expenditure levels, and broad policy guidelines to guide implementation seems immanently possible.
Next week we will focus on the budget as it impacts on  small business. To stay informed please subscribe to our newsletter. 
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