OPINION: Mboweni's adjusted Budget speech a recycled fiscal austerity path
JOHANNESBURG - Finance Minister Tito Mboweni's February 2020 budget speech resembled the "annual pilgrimage" of fiscal austerity and, unfortunately, the June speech on the adjusted budget remained on this austerity path.
Few days into Covid-19 sparked health challenges and attendant social and economic crises from lockdown I've argued that ours is merely a Covid-19 worsened, yet decades-old, triple-crisis (then at 38.3 percent joblessness, 60.5 percent poverty rate and world's widest inequality) in an economy already in technical recession.
If triple-crisis was not an adequate justification for extraordinary fiscal policy steps and monetary policy tools then Covid-19 worsened proportions of social and economic crises were supposed to be.
Mboweni's speech, however, remained business-as-usual and the much needed Reserve Bank's (SARB) "extraordinary" interventions to deal with "desperate" fiscal position and debt situation were not invoked.
The orientation of the adjusted budget remained anchored on "structural reform" agenda of reduced state wage bill, reduced funding for state-owned corporations (SOCs) or the push for privatization of those, and the pursuit of other austerity measures on narrowed fiscal deficit (or balanced budget or budget surplus) and reduced debt-to-gross domestic product (GDP) ratio.
On the revenue side there was no mention of taxes or other revenue-raising efforts, except for the mooted R40 billion tax measures over 4 years starting in 2021\22, and that about $7bn (about R124bn) will be borrowed from international markets as the domestic savings or local borrowing sources are said to be "exhausted".
With the increase on the spending side, including the R500bn fiscal stimulus by way of social relief and economic recovery measures, and despite the austerity measures, the budget deficit will rise to R751.7bn, or 15.7 percent, of GDP from R370.5bn, or 6.8 percent, respectively and the debt-to-GDP rising to about R4 trillion, or 81.8 percent, from 3.55 trillion, or 65.6 percent .
The net effect is that for every R100 of the budgeted spending R21 will go to merely servicing interest to the state loan (principal amount) and this is the crux of the unmentioned role by SARB in funding the Treasury.
Without SARB's money-financed or other interventions the Minister repeated the scare of sovereign debt crisis, making examples of countries like Argentina and Zimbabwe, and offering to pursue debt stabilization through zero-based budgeting to narrow the budget deficit and to stabilize debt to 87.4 percent with R230bn spending adjustments over two years.
Without mentioning other SOCs by names he singled out electricity supply system, or Eskom, by reference as one that will not be "unconditionally and perpetually" supported by the fiscus and he further "decried" the about 50 percent of revenue going to the state wage bill.
All these fiscal austerity measures, as part of structural reform program, do not represent extraordinary measures for desperate times even if the "meagre" R100bn is pumped into infrastructure fund over 10 years, or at R10bn per annum, is taken into account.
At the heart of this self-imposed fiscal austerity is the ideological belief that SARB doesn't have a role to play in funding fiscal deficit-spending, a narrative that will be contested in Part Two.
Katishi Masemola is a trade unionist and writes in his personal capacity. This is the first article in a two-part series.