Counter-cyclical spending will come back to haunt us

The government was very vocal about its spending being "counter-cyclical" during the global financial crisis and the recession that later hit our shores.

Counter-cyclical spending seems a good idea. It softens the blow of external shocks to the economy. When the world lost its appetite for many of the minerals we mine, the government cranked up infrastructure spending. It tried to mop up many of the jobs lost in other sectors indirectly by stimulating the economy. It also stepped in directly by doling out government jobs left, right and centre.

But the idea behind counter-cyclical spending is that it is temporary. As soon as the economy starts growing again, the government needs to rein in the wallet. South Africa, unfortunately, has seen feeble growth since "recovering" from the recession.

Now, half a decade later, the government is still running budget deficits of more than 4% of GDP. That is dangerous in an economy forecast to grow by only 1.4% this year. It means the government has to borrow more.

In this case, borrowing means selling government bonds to foreign and local investors. But they want a return because what if South Africa - like Argentina - won't or can't pay?

That is where the ratings agencies come in. The likes of Moody's, Fitch and Standard & Poor's rate our ability (and trustworthiness) to pay our creditors.

The national Treasury is treading lightly because the ratings agencies are not optimistic about the country's outlook.

Finance Minister Nhlanhla Nene knows he needs to show them the money or be downgraded.

So, he is putting the brakes on spending, though not cutting it yet. He has warned that he wants R12-billion more from taxes next year and another R15-billion the year after.

If you earn a decent income, you are probably on the hook for a part of that. After all this counter-cyclical spending, someone has to pay.

If only some of that spending had actually nudged the economy towards growth of 3% or more belt-tightening.