Medium Term Budget Policy Statement: Building Up to Bold Decisions, But Time Is Not on the Side of the Poor

By Ebrahim-Khalil Hassen · 28 Oct 2010

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Picture credit: My Dream Course
Picture credit: My Dream Course

The Medium Term Budget Policy Statement (MTBPS) occurs in a deepening economic crisis; expressed most notably by the loss of over 1 million jobs in the last year. The prognosis going forward is dire, with government estimates on reaching our developmental goals painting a worrying picture. 

According to official projections, as a society, we are unlikely to narrow the income gap, nor reach our employment targets. If there is a silver lining in South Africa’s Millennium Development Goals report it is that government has achieved or is likely to achieve in the areas of schooling, water and sanitation in terms of targets, but certainly not in terms of quality. The bleakness of the picture going forward is an important reality check to understand the policy responses from government, in the MTBPS. 

The dominant reading of the MTBPS is that it has steadied the ship, or as National Treasury calls it “rebalancing.” A virtuous cycle of lower debt, higher tax collections, improved economic growth and consequently, employment, define government’s response. The message of both weathering the storm, and charting a new course is the succinct one from government. More to the point, that with the tabling of the much anticipated “New Growth Path” government would intervene to improve the quality of economic growth, with a singular focus on employment creation. 

There is some substance to this perspective. The National Health Insurance and proposed reforms to social security indicate a conscious effort to provide income and non-income support to South Africans. Moreover, there are incremental, but important steps to link budget expenditure to trade and industrial strategy.

Ever vigilant against the threat posed by corruption, the National Treasury further provides practical steps to strengthen anti-corruption measures.  Overall, government expenditure increases by 8% over the next three years, thus providing a cushion against cutbacks in social spending. Government has taken the tough choices, argues this reading of our economic policies.

But has government really taken the tough choices?

A more demanding reading of the MTBPS would argue that given the projections on social indicators and the political climate, a space existed for reforms that reach deeper.

The argument proffers that through a combination of slower deficit reduction and interventions to weaken the Rand, an opportunity for structural change exists. Obviously, the assumption is that government would spend a higher deficit effectively, and that an export orientation will propel economic growth and job creation. The feasibility of this reading is supported by responses to the economic crisis internationally, that has seen governments raise debt, support longer-term investments and tax so-called “hot money.” The intent to do all of this is expressed in the words of our Finance Minister, but without a detailed policy mechanism. To rephrase a popular expression – we are letting a crisis go to waste.

Whatever one’s reading of the MTBPS, there is common cause that many decisions are still in the making. Most notably, the details of the “New Economic Growth Path” are yet to enter the public domain. This feeds a perception that the Zuma administration has been indecisive on key economic policies. The rescheduling of the Cabinet meeting to discuss and finalise the “growth path” suggests that this is a criticism that the Zuma administration has listened to. However, time is not on our side as a country, as we attempt to stop job losses, and widen economic opportunities. The central failure of the MTBPS, thus, lies not in the technical details, but rather in economic governance. 

This years’ MTBPS, yet again, commits government and social partners to reaching a “social compact.” It is a commitment that has been heard since the Mbeki administration, and even though several agreements have been reached, there has been little movement towards reaching a compact in society that increases the possibilities of effectively dismantling poverty, unemployment and inequality.

The compact envisaged would be deeper than agreements, for example, in the Growth and Development Summit under President Mbeki. The depth of the agreement would be achieved through selecting policies, which on the best evidence, accelerates the economy and accelerates economic inclusion. In turn, it would require significant concessions. 

This leaves not only the National Treasury, but our entire society in a policy wilderness. For instance, despite wide support for a weaker Rand, there has been little discussion on the exact mechanism to achieve this, as no process has been developed to facilitate this discussion. Similarly, there are other policy areas, especially on industrial policy, that require a more open and contested policy process. In a sense, government has not yet played the role of a ‘developmental state’ that leads society and makes choices in partnership with its social partners.  

The entry of government’s “growth path” document offers a significant opportunity to create a credible, open and results-driven public policy process on economic policy. There are two conditions that government must meet to achieve this.

First, it requires a level of political leadership on equality that we have not yet experienced in South Africa. It requires navigating class, race, gender and other divides that diverge opportunities for fairer income distribution. At its core is recognition that to meet not only our development targets, but also the end result of a fairer society, will require greater innovation in our public policy. Today, across the globe, several experiments on redistribution offer a set of examples on how governments can make policy choices that are widely shared across income distribution. To use the idiom that Minister Gordhan used “Ke Nako – Now is the time.”     

Second, and consequently, the metaphor to guide this discussion is that of the “little guy.” Current indications from the official press releases on the “growth path” suggest a strong place for larger, formal and export orientated firms. These bigger firms have a crucial role to play, but are not the only channel to boost economic growth and employment. Smaller enterprises, start-ups, informal businesses and organisations delivering public services (e.g. early childhood development) are voices largely absent from national economic policy. In building the links between large and small firms the prospects for greater levels of decent work are enhanced. However, it requires more deliberate interventions in areas such as development finance and competition policy in addition to other areas to create a more level playing field. 

The MTBPS can thus be praised for being a hard win in a context that offers few building blocks to make bolder decisions. However, time is not on the side of the poor and more broadly, the country. A conscious attempt to finalise economic policy that has the best prospect to break unemployment is needed, and such policy should be integrated within government’s policy and budget by the next MTBPS in 2011. 

Hassen is the founder of Zapreneur and Proposal Desk, both websites aimed at answering the question, "Can the Internet help South African small business?"

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