Budget 2013 – The New Is Not Yet Born

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Does the Budget have the right toolkit?

Antonio Gramsci, the influential communist writer, has a quote that when applied to the National Budget, tells a story of government adopting a “holding position” when more direct and deliberate action is needed to tackle what the African National Congress refers to as triple  challenge – unemployment, inequality and poverty. The quote is:

The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.

Hard Realities Of Budget 2013

The National Treasury has produced a fiscal framework that could be considered a “holding position” that is simply not good enough to meet the goals of the reducing poverty, inequality and unemployment. The 2013 fiscal framework is understood to reflect three factors:

  1. The slowdown in revenue collection due to impacts of the economic recession; 
  2. Increasing levels of non-compliance in people and companies paying taxes; 
  3. Attempt to balance economic relaities with the need to prioritise programmes. In fact, Minister Gordhan was emphatic in the press conference stating that “This government will never implement austerity measures.”

In fact, under President Jacob Zuma there has been significant reprioritisation of several departmental votes. The Department of Trade and  Industry, Department of Rural Development and Department of Higher Education are examples of government linking spending to play a role as a developmental state. In the case of the DTI, this has been focussed on establishing the special economic zones, and in the case of Rural Development through government buying land. In Higher Education department the focus has been on widening opportunities for young people through expansion of the Further Education and Training sector. For its part, Treasury has played a role of tightening up the official rules of the game, but more importantly through stimulating debate on youth unemployment.

The Old Lingers

So far so good, one might think. However, the new is taking time to emerge. There is wide social agreement that fiscal policy should be  subjected to wider social forces, which means breaking the insularity that traditionally characterised the National Treasury. Minister Gordhan  has indicated that the “long term fiscal plan” is being developed, together with associated reviews on taxes and expensiture. The problem is  that the commitment has already been made in the 2012 budget speech, and progress in this regard has not been publicly visible. The intention is foundational to our commitments to meeting the goals of a more equitable society for three reasons:

  1. Expenditure on programmes aimed at social mobility and economic inclusion are facing pressures due to tax collection rates falling, and we face the possibility going forward 
  2. Big programmes like the National Health Insurance and the infrastructure programme associated with the Presidential Infrastructure Investment Committee will require funding. 
  3.  The deficit cannot grow much higher and more importantly, not quickly enough to support an increasingly expansive role for government. 
  4. The deeper danger is that in our exuberance to build a developmental state we could enter into a debt trap in the next two decades. Whilst, public service capacity to deliver has improved

These contextual factors sit cheek-by-jowl with values of transparency and what Minister Gordhan calls “cost sharing” (which I understand to
mean more than the joint financing of projects, but more expansively that government – society partnerships need to be created).
Yet, the old lingers. The question is why?First, it is vital to recognise that after 18 years of democracy there has been patterns of expenditure that reflect soft captures of state resources. We are not talking about corrupt capture, but rather informal rules that have become embedded. For instance, the Department of Defence spend R 4,3 billion in the 2012/13 financial year on contractors. In the current financial year, this budget estimate is cut by 2 billion rands. The decrease of just under 100% in spending on defence contractors is laudable, and a major step in the right direction. However, it  still R 2 billion. In comparison, structures such as The Jobs Fund and the Small Business Finance Entity (SEFA) have similiar budgets, but have much more important goals to acheive. In the detail of the budget there are other soft captures of state resources, most recently highlighted by the extensive usage of consultants in the public service.
Second, there is a lack of political spade work. Structures like NEDLAC are unjustifiably criticised for not creating a “social compact”, when in  fact the reasons are simply a lack of building structures and systems that build confidence between the parties. As an example, there is a draft  fiscal guidelines document from previous years, that requires extensive debate. A process similar to that being undertaken on the youth employment subsidy needs to be pursued on fiscal policy. There is no doubt that the debate will be contentious, however the outcome is worth engaging in the debate. As an outcome it would commit our society to protecting spending aimed at reducing poverty, inequality and unemployment in ways that translate commitments into a binding framework. The example of the National Health Insurance and the Community Works Programme – which have built wide social support – provide an example of deliberate political work.
Third, the reforms of the budget system to support parliamentary oversight are very new, with the Budget Office only recently established. The importance of the reforms is that it provides civil society with a much deeper engagement process around the budget. The challenge though is that the underlying debate on fiscal strategy are not resolvable in an ideological sense. The debate refocussed on linking rands to prioritise are however resolvable.
Fourth, as the global economic crises has shown South Africa is intertwined with developments across the globe, and that the globe is increasingly volatile. In fact, some pessimistic accounts of the future of global economy suggest that growing volatility is likely to become – in the parlance of management consultant -the “new normal”. In such circumstances, having a guiding policy is vital to guide coherent implementation plans.
Fifth, moving towards 7% economic growth is a tough task. There are in fact no easy answers on how we accelerate economic growth, but the prospects are enhanced with certainty on the long term fiscal strategy. It potentially provides a means to leverage private sector investment as  it would provide certainty, but perhaps more importantly highlight the “pipeline” of projects and reforms that are in place. Even more importantly, it levels the playing field making for civil society organisations campaigning on social and (as recent history shows) on economic inclusion programmes. Simply stated, it provides a way to unpack the framework for inclusive economic growth.

Can the “new” be accelerated?

The idea of a “crises” is central to political theory on building social compacts. The recent events in mining, high levels of social unrest, unease in the private sector over new mining regimes, suggest that the crises has become more visible, more real and a more commanly held view. In a sense we have realised that the crises is on our door steps.
In addition, the National Treasury has laid a foundation. There have always attempted to reprioritise spending, but under the watch of  Minister Gordhan the focus on detail has been impressive. The learning will come in handy, as it provides the basis for a fiscal framework to develop guidelines to cut fiscal spending on wasteful expenditure.
Most importantly, though it is remind ourselves of another quote from Antonio Gramsci on the fable of the beaver:

The beaver, pursued by trappers who want his testicles from which medicinal drugs can be extracted, to save his life tears off his own testicles.

We could be like the beaver through a debt trap, social unrest trap, and even a private sector investment strike.
It is a scary prospect that in each of these traps could emerge, and even simultaneously,  if we are unable to proactively talking about the future in a much more detailed manner. In that context, agreeing to deficit and expenditure levels, and broad policy guidelines to guide implementation seems immanently possible.
Next week we will focus on the budget as it impacts on  small business. To stay informed please subscribe to our newsletter. 
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Most South African Students Score Between 0 -29% in Mathematics

The Department of Education has released the Annual National Assessment (ANA), which provides a bleak picture of educational performance. The performance in mathematics is however extremely worrying. The graphs below show that the largest number of South African students have been assessed to score below 30% in Grades 3, 6 and 9. When a student scores between 0-29%, this is described as “not achieved”. The scoring used by the Department of Basic Education is as follows:
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Key Takeaway on Maths Results

The graphic below summarises the data, showing that 9 out 10 South African students in Grade 9 do not even score above 30% in mathematics.
Maths Scores Annual National Assessment (South Africa 2012)

Grade 3 Mathematics Performance

If you move your mouse over the graphs, the data will become visible. The chart shows that 44% of students in the North West scored between 0-29% for mathematics in the Annual National Assessment.

(LP = Limpopo, MP= Mpumalanga, NW = North West, NC=Northern Cape, KZN=KwaZulu-Natal, NC= Northern Cape, FS=Free State, EC=Eastern Cape, WC=Western Cape).

Grade 6 Mathematics Performance

The performance is Grade 6 gets progressively worse, with two-thirds (66%) of students scoring between 0-29%.

Grade 9 Maths Performance

The results for Grade 9 are staggering, with over 90% of students scoring between 0-29%.


Maths performance

The data paints a worrying state on mathematics education in South Africa. The performance across Grades 3,6 and 9 indicate that performance levels drop as students move to higher grades. The data is captured in a table in a separate post.
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MTBPS – Adjustments and allocations, but who benefits?

The MTBPS primary aim is to state the policy direction that government has taken. However, as part of the MTBPS there are adjustments made to budgets which provide us with an indication of how government uses these adjustments to support its objectives.  Here is the run down of the major adjustments to the 2011/12 budget.

Government will spend about 9 billion less than anticipated

The National Treasury notes that

Taking into account funding set aside in the contingency reserve at the time of the 2011 Budget, projected underspending, savings declared by departments and the adjusted state debt cost estimate, the revised estimate of total expenditure in 2011/12 is R888.0 billion. In February 2011 at the tabling of the budget, provision was made for expenditure of R888.9 billion for 2011/12. (Page 34, MTBPS, 2012)

Under spending by government departments has largely come under control, but with local government’s still struggling to spend funds on infrastructure and other projects. Spending performance by government has however improved over the years, but this remains an area that needs to be urgently tackled. In an environment of low economic growth, there could have been a range of ways to spend all or part of the R 9 billion budgeted. For instance, additional funding could have been provided to the Jobs Creation Trust or to a number of other programmes.

  Continue reading “MTBPS – Adjustments and allocations, but who benefits?”

Less government spending, and what the National Treasury intends doing to improve the situation

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Does the MTBPS have the right toolkit?

Minister Pravin Gordhan in previous budgets put in place a counter-cyclical strategy to support South Africa due to the impacts of the global financial crises. The recovery in the South African economy has not been as robust as anticipated raising significant challenges. Our economic growth is sluggish and non-interest spending is declining, painting a worrying picture going forward.

Economic Growth

South Africa’s economic growth is more like the developed world, than emerging economies, according to the MTBPS. South Africa is thus projected to underperform in comparison to its peers in other emerging economies and lags behind developing Asia. The choices made by government in the MTBPS will unfortunately continue this trajectory.
Continue reading “Less government spending, and what the National Treasury intends doing to improve the situation”

MTBPS-More continuity, when change is needed

The National Treasury argues that:

The measure of a strategy is not in the breadth of objectives it seeks to address, but rather in its focus on those objectives that really matter. Fiscal constraints force government to choose carefully between competing objectives.

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Does the MTBPS have the right toolkit?

This provides a benchmark against which to assess the Medium-Term Budget Policy Statement (MTBPS). The common sense approach is to focus on the level of the deficit. On the one hand, the financial markets will welcome the attempts to reduce the deficit over the medium term, whilst raising concerns about the current perception that debt is high. On the other hand, civil society organisations will argue that more needs to be done, but the deficit will be an indicator that government is attempting to do something during this downturn. There are important public policy choices in this debate, with the National Treasury providing an important input in the Fiscal Guidelines.
However, there is a foundational question – Are the objectives the right one’s? Or more crisply, is the underlying strategy the correct one? To place, this in context South Africa lags behind its peers in terms of economic growth.
Continue reading “MTBPS-More continuity, when change is needed”

Jobs Fund Update from the MTBPS

The Jobs Fund - National Treasury funds, DBSA implements

Minister Pravin Gordhan provided a couple of details on Jobs Fund launched on the 7 June 2011. In the past five months, there has been a call for applications and a letter send to applicants indicating the process to be followed. Minister Gordhan indicates that 2 651 applications were received in the first call for proposals, with it:

illustrating the demand, innovation and desire across both the private and public sectors to create jobs,

according to Minister Gordhan.

The applications received covered enterprise development, support for work seekers, infrastructure investment and building institutional capacity. The outcome is that projects to the value of R 352 million has been allocated, with the prospect of creating 115 226 jobs.

Economic Freedom and Fiscal Policy – Previewing the Medium-Term Budget Policy Statement 2011

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Does the MTBPS have the right toolkit?

As Minister Pravin Gordhan delivers governments Medium-Term Budget Policy Statement (MTBPS) for 2011, the debate on economic transformation is gathering pace. In the same week, as the MTBPS is announced both the African National Congress Youth League (ANCYL) and the Young Communist League (YCL) will hold events focussed on economic transformation. These are separate events, and speak to the broader political positioning that sadly is becoming a permanent feature of the African National Congress.
The strategists at the National Treasury will have to consider these events, but will also have to look towards how the market will react.  The biggest challenge is that rating agencies have raised concerns about the level of government debt. Whatever one may think of the ratings agencies – who contributed to the global financial crises by providing good ratings to dubious investments – they wield power within the market, which in turn impacts on investment choices. Moreover, South Africa will be borrowing to finance primarily the expansion of power stations, but potentially in other areas as well. In other words, the perceptions of rating agencies and larger private companies matter. Their opinion should matter less, but the reality is that they have a powerful set of mechanisms to influence public policy and to ultimately impact on economic growth.
Continue reading “Economic Freedom and Fiscal Policy – Previewing the Medium-Term Budget Policy Statement 2011”

Youth subsidy – Bringing education into the picture

The debate on youth subsidy has gathered pace. The arguments for a youth subsidy consist of two major arguments.
First, the high rates of unemployment amongst youth are exceedingly worrying. As shown in a previous chart on Zapreneur. The key features of the unemployment data by age, show that:
The key features of the data include that:

  • The biggest proportion of unemployed are concentrated in the age groups 15-24 years (29.5%) and 25-34 years (42.8%).
  • Unemployment for those 34 years old and younger accounts for 72,3% of unemployed South Africans.

Youth unemployment thus is a serious challenge, and perhaps the defining challenge that we face.
Continue reading “Youth subsidy – Bringing education into the picture”