Instead of using this considerable fiscal space that has opened up for much needed investment, R15bn this year and R29bn over each of the next two years has been parked in “unallocated reserve”.
An economic non-vision: austerity, debt and more of the same
The MTBPS 2021 states that “[t]he fiscal strategy remains broadly unchanged, with a focus on achieving a primary budget surplus from 2024/25”. It is baffling that more than a year into the pandemic, with numerous lessons learnt, both locally and globally, on the importance of public investment, the government remains committed to an austere approach adopted in the 2020 Special Adjustments Budget. This shows a profound misunderstanding of the crisis and no vision for how we solve it.
This approach underestimates the social and political risks of not utilising fiscal space for the rescue of the economy and to pave the way for an equitable recovery.
As we have argued before, reducing the share of the budget spent on debt servicing costs is a valid objective. There are three ways governments attempt to do this: 1. a pursuit of a budget surplus via expenditure cuts (austerity); 2. increasing growth through fiscal expansion (stimulus); 3. and/or monetary policy and regulatory interventions to directly lower the cost of borrowing.
The first of these - pursuing a budget surplus through expenditure cuts - has been proven disastrous. In Greece and Ireland for example, Oxfam found that budget cuts reversed a decade of growth. The local and international evidence shows austerity has failed on its own terms and proved to be self-defeating. Instead of economic recovery, austerity has brought about recession, stagnation and worse inequality.
SA must adopt a combination of the second and third approach. It must pursue a path of carefully targeted expenditure increases to spur sustainable and human-centred economic growth, while actively intervening to lower borrowing costs.
The mantra of “structural reforms” - designed to lower the cost of doing business and create a more competitive economy - will not bring growth or jobs on its own. First, the significant investment that is needed to ensure meaningful improvements in economic infrastructure is nowhere to be seen in this budget. Second, demand in the economy remains historically depressed, which will be worsened through budget cuts. Third, economic reforms must centre decent work and structural transformation of the economy, not just “competitiveness”.
The macroeconomic policy framework needs reimagining so that macroeconomic policy drives a transformative agenda with macroeconomic, sectoral, labour and social policies mutually reinforcing one another.
What we need
The Institute for Economic Justice (IEJ) has put forward a number of alternatives which remain desperately needed. In the midst of disinvestment in basic services and a lack of clear vision to alleviate unemployment, poverty and stimulate growth, the government must urgently implement the following measures: