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fiscal policy

Medium-term budget policy statement bucks boring trend

The medium-term budget policy statement has been a boring affair thus far. Sure, there have been moments such as in 2013 when Pravin Gordhan introduced cost-cutting measures in the government, culling lavish lunches, alcohol-fuelled events and business-class travel. But this was hardly earth-shattering stuff. Then there was last year’s statement by the then finance minister Nhlanhla Nene, which saw “fallist” students bring some excitement to Parliament. It served more to overshadow the medium-term budget than to give it prominence.

There is a good reason the medium-term policy statements have been such bland affairs. The government tends to conform to the main budget, with limited adjustments midway. The expenditure ceiling is adhered to. All as it should be.

This year is different. The passage of the medium-term statement is seen as a test for the standing of Gordhan and the Treasury within the government. Gordhan is still in his position. Does this mean he has the political support to do the tough work of allocating resources in a charged environment?

But to gauge the “balance of forces”, to borrow a phrase from the ANC, based on this budget statement might be a lot to ask of a carefully stage-managed process.

This year’s statement is also marked by the fact that it will be watched even more closely by credit ratings agencies. The 2016 budget had to balance a complex range of goals: stabilising government finances, facilitating economic growth, maintaining social spending, improving governance and restructuring government, and maintaining an investment-grade rating.

The deficit budgeted for in this year’s budget was quite ambitious at 3.2% of gross domestic product. It will be interesting to see if this is still on track to be met.

As I wrote in February, ratings agencies have access to the same media footage as everyone does. They see the protests, the heated political debates, the fraying social fabric, and know that resources have to be spent to tackle the country’s socioeconomic challenges.

Fiscal stability is not the only variable in their calculus.

How the Treasury finds additional funds for the shortfall as a result of no increases for poor and missing-middle students in higher education will say a lot about how the government thinks about national priorities and trade-offs. It is good to see citizens talking back to the budget beyond the soft channel of “tips for the finance minister”. It is not so good to see that the country does not know how to manage contestation over resources that easily turns to violent confrontation.

This budget will be scrutinised for signals about important changes to be announced or fleshed out next February. The prospect of higher tax rates or new taxes remains, especially since the growth outlook is weaker than what the Treasury forecast in February.

The medium-term budget will be illuminating on these and other issues. Yet, despite all the good work that will go into it, I’m afraid it will be unsatisfactory. The problem is the sense that the country is meandering from one event on the economic calendar to the next, in the absence of a clear economic vision.

Questions and concerns remain about how the budget translates into effective action by the implementing departments and spheres of government.

However sound fiscal policy might be, it has practically to be meted out by a capable state. The budget also has to be stacked against other actions and policies on the economy. The medium-term budget is set up to underwhelm as it cannot possibly fill the void created by weak economic leadership from the highest level.

• Makhaya is CEO of Makhaya Advisory

This piece was first published in Business Day (11 October 2016)

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