The tension at the heart of the ANC’s lekgotla this past weekend — between the desperate need to extend social assistance to those hit hardest by the Covid pandemic and the lack of government funds to do so — goes to the heart of SA’s fiscal challenge and its failure to grow.
Enoch Godongwana, the head of the ANC’s economic transformation subcommittee, provided a succinct summation of SA’s "bleak" fiscal position: government expenditure is too high for the revenue that the economy can generate.
But set against the imperative to reduce the size of government in line with SA’s shrunken economic prospects is the plight of the poor.
The ANC keenly feels the need to extend the R350 a month special Covid-19 social relief grant for unemployed adults, which expires on January 31. Ideally, from a poverty alleviation point of view, it would form the basis of a permanent basic income grant to compensate for the economy’s inability to create sufficient low-paid jobs.
President Cyril Ramaphosa says any extension of basic income relief will depend on the state of public finances, but it’s debatable whether the party grasps just how precarious this is. The situation prompted finance minister Tito Mboweni to tweet on Monday: "One cannot have everything at the same time. You have to prioritise within your existing resources. You must balance your books. You must internalise your budget constraint."
Given the R10bn splurged on SAA, and the extent to which the metros pushed through average wage increases of 6.2% last year (almost double inflation), the penny still hasn’t dropped. That SA has a hard budget constraint is far from being internalised in the ANC or broader alliance.
Cosatu still wants to improve the pay of public servants while trying to extend government benefits and services. Never mind that unless huge fiscal consolidation can be achieved, SA’s debt ratio will exceed 100% of GDP in the next few years and the sovereign will likely default.
Godongwana put it well when he explained that SA can’t spend its way out of the crisis because it spends on all the wrong things (consumption rather than investment). In any event, major structural impediments such as electricity shortages limit the economy’s ability to respond to extra government spending. (This is why for every R1 the government spends, it generates just 27c of economic growth.)
But neither can we tax our way out of this, because SA’s tax base of just 5-million individuals is already overburdened and shrinking. For every tax increase in recent years, the payload in terms of additional revenue has been dropping.
What we need, Godongwana said, is to implement growth-enhancing reforms. He called for emergency measures to stabilise SA’s energy supply and reduce reliance on Eskom, while making a strong case for increased investment in infrastructure, especially in renewable energy, to boost the economic recovery.
He singled out mass employment creation as SA’s "most important goal", while adding that a vaccine rollout had to be a "top priority", both for health purposes and to reignite economic activity. For only once SA has achieved herd immunity can all lockdown restrictions cease, giving the economy a fighting chance.
But it will require hard budget trade-offs to fund the R10bn-R20bn vaccine rollout. It would be a tragedy if this means not being able to extend income support to the most vulnerable, but the ANC has only itself to blame for having backed the country into this fiscal corner.
Sadly, every single South African is now paying the price — but none more so than the poor.
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