Nkosikhulule Nyembezi
CAPE TOWN – The government has an opportunity to set the economic and investor-confidence into an accelerated upwards trajectory, as the finance minister, Enoch Godongwana, delivers his maiden budget speech – a landmark event for setting out a longer-term vision.
A maiden budget speech. That is how many voices in the media have been labelling the much-anticipated speech. The label sounds awkward as it leaves questions hanging on whether we can expect a fresh start of pragmatic action on the implementation of micro and macroeconomic policies or a continuation of contradictions amongst ANC factions on the scope and content of its 54th national conference resolutions.
And the sorry state of South Africa’s economy has been revealed by voices in the media after almost two years since South Africa declared a State of Disaster to prevent the spread of the Covid-19 pandemic.
They correctly point out that the economic outlook remains constrained due to low economic growth, high unemployment rates and mounting national and household debt.
What a difference a matter of weeks makes, retrospectively and prospectively.
First, when looking back, in that little time we have gone from hard lockdown to the minimal level of restrictions following the availability and efficacy of Covid-19 vaccines.
Everything appeared to be going well for the economic recovery from Covid-19.
The worst forecasts for the economy have not been realised, helped by a massive lift to corporate income tax (CIT) receipts from buoyant commodity prices, which have lifted mining houses' operating surpluses sharply.
The remarkable levels of government support to qualifying companies has also helped avert closures and further job losses. Retail sales are steadily rising to pre-pandemic levels, and South Africa is marginally set to add new jobs in several sectors of the economy during the year.
Second, when looking ahead, there is unfortunately an increasing uncertainty on how fast the government can implement the necessary changes to improve state co-ordination of public and private investment in key areas of the economy, including the green energy sector.
The past nine months of this government’s stewardship of the economy are the latest example.
It pumped more millions of rand of public money into encouraging employers to retain employees on the payroll during hard lockdown.
Now there’s still reluctance to open sports activities and other sectors of the economy where people can be free to mingle.
Yet, the personal income tax revenue source is negatively impacted by emigration, unemployment, pay cuts and poor economic growth in labour-intensive industries.
Godongwana is expected to reassure cautious people, seeing that the government appears increasingly to be playing a bad hand with unnatural ineptitude – wheeling from one U-turn to the next with increasing speed and frequency.
Deservedly, there have been genuine calls for the government to make announcements on sizeable household and corporate tax relief, and bold policy implementation moves to ensure that the government and private companies create the much-needed decent jobs and global competitiveness of the country’s economy.
Hang on a bit, the left within the governing ANC and both its alliance partners the SACP and Cosatu are demanding a radical policy shift to realise economic growth and creation of jobs.
They have emphatically told President Cyril Ramaphosa “you are not speaking for us” in the State of the Nation Address (Sona) in what they call his “fatally flawed assertion” that big business should lead job creation because it’s not the duty of the state to do so.
They want a government-dominated national economic growth programme that will see the privatisation of the Reserve Bank, in addition to the government’s strong grip on key sectors of the economy.
What’s more, the government has been urging private investors to invest more in renewable energy in line with commitments to move away from fossil fuels, to speed up the transition to a net-zero carbon economy.
All this while the mineral resources and energy department is advocating for new licences for exploration and exploitation of oil and gas.
As Minister Godongwana will be expected to demonstrate, the ANC can either elevate a short-term, and partial, fix to its ideological differences on the complementary role of the state and the private sector in building our economy at the expense of national interests on sustainable economic development, or it can have a long-term solution to the unemployment and poverty crisis that meaningfully involves all social partners. They can’t have both.
Actually, they can. President Ramaphosa has already set up a series of platforms to attract direct foreign investment, and former finance minister Tito Mboweni announced in his February 2021 National Budget that the current company tax rate of 28% should be reduced to a more acceptable level to stimulate growth and encourage local and foreign investment.
There are at least three reasons for a corporate and personal tax revision: the high cost of living crisis has left millions of households worse off, even after the Treasury’s Covid-19 support package; previous ANC governments have found taxes a useful way of raising money when the economy was in better shape, and it is logical to relax the tax regime in times of serious economic depression; and it would shoot ANC’s fox ahead of the 2024 national and provincial elections.
This government is in a situation few would envy, affording the president and the finance minister more leeway than might be usual amongst voters, as it puts into practice Ramaphosa’s promised new social compact “to revitalise our economy”, and “end inequality and injustice” that impeded progress.
These rapid gear changes on policy positions and disjointed co-ordination are becoming riskier the longer the economic growth projects remain at unsustainably low levels.
We are in for the long haul, and even months after vaccines have become widely available, as changes in how we live and work have been set in train that won’t be reversed.
Rather than rapid short-term gear changes ahead of the ANC national conference, more long-term thinking is required to support our economy.
* Nyembezi is a human rights activist and policy analyst
Cape Times