Treasury rejects economists’ ‘attacks’ on budget
Treasury officials tell MPs the proposal by a group of economists that government spend more ignores SA’s growing debt spiral
The Treasury made a robust defence of its supplementary budget in parliament on Friday, saying attacks against it by a group of economists and civil society organisations are riddled with misrepresentations.
Treasury director-general Dondo Mogajane was responding to criticisms of the supplementary budget by a group of economists and the Budget Justice Coalition on the grounds that it is an inadequate response to the magnitude of the crisis precipitated by the Covid-19 pandemic in that not enough is allocated to government spending to address it.
The economists urged parliament to reject the supplementary budget.
Mogajane said increased government expenditure has to be balanced with the need to rein in public debt. The government is exercising responsibility in preventing a collapse in public finances. “We are not a reckless National Treasury or a Treasury that would jeopardise the fiscal future of this country and the future generations.”
Mogajane said the presentations made are “empirically false and misleading” and said parliament “should not be deceived and misled” by the “baseless and politically motivated” attacks on the Treasury.
It is not true, as the economists claimed, that the budget reneged on President Cyril Ramaphosa’s R500bn relief package, because a large part of the package was funded by reprioritisations rather than new money, he said. The budget is in line with Ramaphosa’s statement that the package would be partly financed by R130bn in reprioritisations. This means addressing low priority, low efficiency and wasteful expenditure.
It is therefore false and a “twisting of the facts” to say that the reprioritisation came from the Treasury and not the president.
“Parliament should be wary of allowing itself to be used as a platform for false, misleading statements,” Mogajane said.
He stressed that the supplementary budget does provide for additional spending to deal with the pandemic and this could be seen in the expansion of the budget deficit to “a frankly unsustainable level”.
The consolidated budget deficit will increase from the 6.8% forecast in the February budget to 15.7%; and the gross borrowing requirement has increased by R344bn to R777bn this year, with the consequent rise in debt service costs.
Gross debt to GDP is forecast to peak at 87% in 2023/2024.
Treasury officials pointed out that the failure to address the debt trajectory would result in debt service costs consuming about 31% of main budget revenue by 2024/2025.
MPs not naive
Select finance committee chair Yunus Carrim took offence to Mogajane’s suggestion that MPs would allow themselves to be misled as if they were naive and foolish. He said Mogajane had gone further than he should and than what is allowed by the norms of parliament.
Acting head of Treasury’s budget office Edgar Sishi noted that SA’s fiscal stance had been expansionary for more than a decade. For many years, government spending has grown in real terms and much faster than the growth in the economy and inflation. Since 2008, government spending had grown by an annual average of 4% in real terms. This had not translated to higher growth.
The supplementary budget represented the most expansionary budget in many years, resulting in an unprecedented rise in the budget deficit and an unprecedented increase in government borrowings to an unsustainable level.
“This expansion provides one of the most robust responses to the Covid-19 pandemic among developing countries,” Sishi said. “However, SA cannot use the pandemic as an excuse not to address the weak public finances and to achieve higher growth rates in the future.”
Sishi said the austerity/stimulus debate represents a false choice and that the Treasury does not make policy according to this paradigm.
“The reprioritisation approach we have used is a prudent and appropriate approach to funding part of the relief measures announced by the president, and is in line with practices in numerous countries worldwide.”
The injunction to spend even more ignored the prospect of a debt crisis facing the government.
“Calls for more government spending appear to us to be based on the incorrect assumption that SA suffers from short-run cyclical demand challenges rather than long-run structural weaknesses in the economy. Higher government spending and borrowing has not led to higher growth in many years,” Sishi said.
Sishi noted that the government’s response to the pandemic was massively counter-cyclical. The only choice facing the government at this time is between a looming debt spiral or fundamental reform. A fiscal stimulus cannot address the underlying structural issues.
“The policy of the government is that a structural increase in the level of spending must be matched by an increase in structural revenues.”
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.