OL web-02-01

"It is certainly not our task to build up the future in advance and to settle all problems for all time, but it is just as certainly our task to criticise the existing world ruthlessly. I mean ruthlessly in the sense that we must not be afraid of our own conclusions and equally unafraid of coming into conflict with the prevailing powers."
Karl Marx, 1844


Published: 10 July 2020

Transcribed from a Radio 786 interview.

Tasheeq Truebody (Interviewer): We’re going to be talking about the budget speech that the minister had pronounced on yesterday, despite identifying debt as a weakness and it eating away at the inheritance of South Africa’s children. It remains to be seen just how the government is planning on stabilising it, the matter dominated the Minister of Finance Minister’s budget as he revealed that, every Rand [that] is being paid in tax about 21 cents goes to bank interest on historical debt, the Minister went on to confirm that there will be seeking to borrow money from international financial institutions. It is also allocating R3 billion to recapitalise the land bank, which will hold about 29% of South Africa’s agricultural debt.

To make of these finances, we are now going to be talking [to] and joined by Oupa Lehulere. He is the Director of the Khanya College, an NGO that is aiming to assist constituencies within the working class and poor communities in responding to the challenges posed by the forces of economic and political globalisation. Oupa, a very good morning and welcome to Radio 786.

Oupa Lehulere: Good morning Tasheeq and good morning to your listeners.

TT: What do you suppose we read from the budget, there is an admittance that debt is a big problem yet we are still talking about doing business pretty much in the way we have, other than for zero-based budget as, I guess, a new change government is seeking to manage finances.

OL: Thanks very much once again Tasheeq. I think the important thing to notice about this budget, is the fact that it was framed in a way by three important elements that should have come through. And looking at how they come through I think tells us a lot about the strategy and the intentions of the government.

I think the first one of course is that we have the pandemic that is just beginning, and of course a pandemic that is not handled with, in a sense, energy and intervention. It is going to have very long lasting consequences. And I think once we treat the pandemic as if it is just a short-term temporary thing, it can have very long lasting consequences.

The second issue of course is that we were going into, we were in recession when this pandemic started and I think that globally, which is the third point, we’ve got a global recession that has been triggered by it. It means that all the outlook on the future has changed. What one notices about the budget, ironically, and then disappointingly, is that in fact this budget could have been written way before the pandemic in the way that it is handled.

Firstly, just on the levels of expenditure fronts, there are no major shifts in expenditures in this budget, I mean, and even when one compares it to the one delivered in February, itself already a problem in the sense that the pandemic was already understood and beginning to take effect globally at the time, there’s only a 2% changes in expenditures that have taken place in this budget. So the fact that there is a deficit that has increased has not been so much due to the fact that there has been new interventions that are quite significant in this budget, but mainly due to the contraction in the revenues, in the revenue collection. So firstly, it’s [an] important thing that we [are] not attempting to intervene in the context of this pandemic, in the context of the recession, to begin to mitigate it in any serious ways.

The second thing, as we’ve mentioned is that the commitment to do what the Minister has called zero-based budgeting in a way runs against what is the, kind of received, practically almost everywhere in the world because the point about this is that expenditure by the budget is not always purely consumption. Used strategically, it actually is the basis on which the debt ratios are going to fall. Debt in the context of the state budget, you don’t resolve it by simply cutting off your arms, you have to have the kind of capacities to create growth. And I think what has happened in this budget is that it has been interesting because the expenditure changes have been so minimal, the way that even the inadequate coverage, expenditures, on mitigating the pandemic, and on son, the way that it’s been achieved has been basically to compromise some of the important interventions infrastructurally that are not only important for the long term productivity of the economy, but are actually important even for the short term intervention. For instance, if you look at the conditional grants that have been suspended, in order to find minimal intervention, almost many of them, refer to them refer to infrastructure or they are infrastructure expenditures. In that sense I think we can see that we’re not creating the foundation for growth here. And I think the strategy seems to be, you will balance the budget simply by cutting off […] and of course, there is always a limit of the extent to which you can cut off as a government and I think we are going to have a situation where we’re going to take a very long time to get out of the economic crisis, because you don’t solve economic crisis in the way that this government has decided to do.

TT: I think the point you are setting in there is that there is little foundation for growth within this budget and at least inflected in government policy at this time, however I’d like to quickly spend some time looking at the zero-based budgeting approach. It appears to me to have its strengths and weaknesses in that I don’t believe the state necessarily has the capacity as well as the pace  to uphold the rate at which we will need to spend within departments in terms of government service delivery if we take the zero-based budgeting approach, however we also see one of the adverse warning coming in fact from the unions that it would give Treasury the ability to determine what is important and what isn’t; and sometimes really, accountants only see zeros and the bottom-line and not necessarily can relate to why the need would be to spend, for instance, on certain government programmes. So, zero-based budgeting, how wise it is, or is it required now at the time when we need to turn around every single Rand a few times before we spend it.

OL: Yes, I think, if you think about this situation, it’s kind of okay to say, in my individual household because my income, there is no real investment income that is triggered within households. Zero-based budgeting appears to make sense. I have to have the money and income in the way is fixed. No corporate would be able to operate with zero-budgeting, he knows that, I mean all the time, that’s why you have capital markets because you need to be able to spend in advance in order to create the income that then bring debt down. So, for every corporate, now it is well understood that there is a moment when your debt goes up, you go to capital markets, you are able as a result to generate [income…].

The idea of a zero-based budget, the irony of it is that the countries that have spoken the most about zero-based budgeting – the United States, the United Kingdom, various major countries, not a single one of them can operate on the idea that you can collect a certain amount of tax and then just spend that and that’s the end of it. If you do that, actually you’re spiralling into collapse because you have no way of triggering the kind of production efficiency, the kind of generation of goods and services that then raise economic growth and through that the ratio of debt to the size of your GDP, [BPA], to decline. Actually, the irony is that throughout the period of Reagan and Thatcher where, Reagan especially argued that state mustn’t spend and all that, the state debt actually went up because of course it’s going to go up because you are creating recessionary conditions and are cutting basically the branch of the tree on which you are sitting.

So, the zero-based budgeting approach just shows ironically, the fact that the world is discussing and questioning very seriously the economic models that has driven it into the point that it is in now. In South Africa, for example, the Minister makes the point in his budget that because of South Africa’s exposure to exports he said South African can’t then produce its own ventilators; it can hardly produce its PPEs; it’s decimated its industrial base and yet what we find is a situation where the government is going to continue along that route, try to deepen that. As I said, when we go to the section of how will the government prepare for the post-covid economy, the government doesn’t look at how has covid changed and how the thinking in the world about budgeting; about economy is beginning to be profoundly affected by the experience of covid. All we’ve been given is well, ‘these are documents that we wrote 2 years ago, in that document we agreed to an austerity policy. The fact that the world thinks that that is no longer going to work, all we did was just to go back.’ And when I went to try and find, what is the economy that is going to be created, even a new strategy because of the new debates that are important, whether you go to the Financial Times, or you go to the Economist. Everywhere you go the debate is ‘the old way isn’t working, we cannot emerge out of covid with the old way.’

The south African government simply reinforces the triple document that they constructed when there was no covid in sight, when there were no changes in the global economy, which have becoming quite structural. The airline in the streets, the tourism industry, all these things have been deeply questioned, but all we have has been to recycle and not even old line, I mean you will bottle that BB cycle, its lines gone off completely. In that sense the preparation of another set up, it’s important to talk just a little bit about the pandemic issue. The biggest issue about the pandemic that’s coming out globally is that the health systems were not prepared for the pandemic, number one. Number two, these pandemics are not temporary. The WHO warned about them and everybody said they’re going to recur. We’re not seeing an opportunity to say look, how do we redo our health systems, so that not only do we begin to tackle this pandemic, which I think is going to be devastating and the government seems to have settle with the idea that it must be a devastating pandemic they are not going to try and mitigate it, but we’re not laying the foundations to deal with waves of this pandemic that people are talking about. If you’re talking about the pandemic into 2022 then that perspective must be reflected in the way you are spending on your health budget.

TT: Perhaps, if we didn’t have sufficient time to come up with that, we should have. I guess at least we had some inferences to this new imagined economy that the president has been talking about but in actually policy and budget, it is not playing out there. We are out of time Oupa, thank you very much for your analysis this morning. He is the Director of Khanya College, an NGO that aims to aims to assist constituencies within working class communities and poor communities in responding to challenges posed by the forces of economic and political globalisation. Oupa Lehulere, on the line there on the budget by the Finance Minister.

Listen to the interview here.

Originally published here: https://karibu.org.za/special-covid-19-budget-receives-criticism/


"Ideas that enter the mind under fire remain there securely and forever." -Leon Trotsky