Minister Nene’s Budget 2015 Exposes South Africa’s Poor Economic Policymaking Agenda

Finance Minister Nhlanhla Nene, in his inaugural budget speech, offers this piece of wisdom, “The challenge of governance is to choose wisely between competing alternatives.” This takeaway statement is as true of Minister Nene’s inaugural budget speech, as it is about each of his predecessors. However, underlying these choices is deep polarisation in South Africa.

On the one hand, mainstream commentators from financial institutions are praising a lower than expected deficit, moderate tax increases and funding for infrastructure projects. On the other, trade unions and civil society are roundly criticising the budget for modest increases in overall spending for paltry increases in line items aimed at economic transformation and for tinkering with the tax system.

It is as it should be. It reflects a noisy and vibrant democracy.

In any democracy, government budgets are inevitably about balancing competing interests. But budgets are more than mere conjunctures that show the success of one interest group over another. Budgets, after all, provide the means for governments to link resources to plans. Herein, lies the problem with Minister Nene’s Budget 2015: the absence of agreement on a broader economic strategy for South Africa, and the lack of leadership in developing a coherent economic plan that can form the basis for dialogue.

The rupture in responses to Budget 2015 shows a deep division of opinion about the purpose of the South African economy. It is reflected in shorthand descriptions of economic policymaking demonstrating typical “polarisation paralysis” and a “leadership deficit”.

Our governments’ inability to clearly articulate its programme for “radical economic transformation” and to mobilise parties behind such a programme places National Treasury in a difficult position. Reaching broad agreement on an economic strategy for South Africa is extremely difficult, but not unattainable. Nevertheless, efforts to build consensus are feeble.

In a famous formulation on the developmental state, American academic Peter Evans uses the term “embedded autonomy” to describe the role of governments in working with social partners to reach consensus, whilst retaining an overall leadership role. Sadly, it can be distinguished straightaway that Budget 2015 lacks the foundation needed for social dialogue in South Africa, not merely to improve the legitimacy of the budget, but to improve public policy.

In addition, a level of realism is needed in economic policymaking. Every budget since 1994 has been premised on increasing economic growth above 5%. In the early years of the democratic government, this was primarily by reducing government spending and deficits and seeking a response from the private sector. More recently, government has adopted a counter-cyclical strategy that seeks to increase spending in times of poor economic growth and to reduce spending and support private sector growth when the economy is performing. The underlying idea that once rapid economic growth is achieved employment will become plentiful has been a mainstay of economic policymaking. However, realism dictates that we view South Africa as having moderate economic growth (of around 1-3%), especially until our energy challenges are sorted out.

The sharp and difficult question is how South Africa expands opportunities and outcomes in a low growth environment. Specifically, how do we address the vast levels of inequality in our society?

Budget 2015 does not provide an adequate answer to this question.

Importantly, it is difficult to link line items in Minister Nene’s Budget 2015 to the Nine Point Plan outlined by President Jacob Zuma in his State of the Nation Address. The opaqueness of budget allocations to stated policy objectives must give further cause for concern, as it buttresses the argument that there are weak links between economic policy statements and actual budget allocations. A more transparent approach that displays line items, which aim to meet the objectives of economic policy, would provide a means to monitor progress and assess impact.

Clearly, there is no magic wand to rectify centuries of systemic exclusion, but boldness is required. For instance, introducing a universal Community Works Programme could provide the means to rapidly introduce the young and unemployed into a first job. This potentially provides a much better return on investment than the plethora of initiatives aimed at addressing youth unemployment.

Moreover, there are simply too many big-ticket items on the table in Budget 2015. The combination of National Health Insurance (NHI), Nuclear Energy and the Infrastructure Investment Programme are amongst the major items. Even under the most optimistic projections, we simply do not have the resources to fund all of these programmes successfully over the medium term.

Choices need to be made, more especially, because each of the programmes will show different results for the country. The NHI could have the biggest social gains, the infrastructure programme will potentially create an environment that supports growth; but there is no developmental logic for going the nuclear energy route at all.

If indeed the NHI and the infrastructure programme are the major drivers of change, then the budget is found wanting because allocations to these programmes remain unclear and patchy.

Significantly, Minister Nene provides few details about these big-ticket items, not mentioning nuclear energy and leaving health insurance financing options to a future paper. The Infrastructure investment programme, however, has improved reporting in the Budget Review.

There is a huge gap between safeguarding public funds and ensuring that limited resources are spent wisely. Budget 2015’s central failure is not about the size of the deficit or whether this or that project is funded. Rather it is the absence of showing leadership in prioritising a clear programme for South Africa and building support for that programme. In the parlance of the developmental sector, it is a governance challenge. In this context pro-poor policy options developed outside of government have limited prospects of influencing allocations.

The traditional stance of Treasury has been to remain aloof from these debates and to create an insulated space that they argue is needed for making tough decisions. It is a stance that seems to be changing, as Treasury has had several engagements with social partners in the last year. The challenge however is much bigger with government needing to build support for its programme, and by extension for the allocations it provides. Minister Nene should be reminded that governance is not simply about making difficult choices, but to make choices by listening to competing voices and then more importantly building support for a clear programme of action. This requires vision and mobilisation. This is what is lacking in economic policymaking in South Africa.

This article was first published under creative commons license on South African Civil Society Information Service website.

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