Analysis & Profiles 3.3.2016 02:29 pm

Fiscus purse strings are not puppet strings

Pravin Gordhan. Photo: GCIS

Pravin Gordhan. Photo: GCIS

The fight over the country’s kitty: Its impact on fiscal policy and why this is bad for the economy.

If one takes the idea that the South African economy is the ‘second greatest powerhouse on the continent’ as self-evident, then the state of our fiscal policy is as critical as that of education, health and our freedom.

Why does it matter if the finance minister, the South African Revenue Service (Sars) and the Hawks are embroiled in political fights instead of dealing with the many crises that have a significant bearing on how the fiscal policy is positioned?

The current juncture – clearly a standoff for controlling powers over the public kitty and all entities directed by Treasury – has led me to conclude that the political principals who are by virtue of their office the bosses of those running Treasury, are yet to understand what James M Buchanan says in his: ‘Introduction to Public Finance in Democratic Process: Fiscal Institutions and Individual Choice’.

In paragraph 13 he says: “Individuals are not, of course, omniscient, even those who think themselves to be. The securing of information about the predicted effects of alternatives is a costly process, even in a world with reasonable certainty. Recognising this, individual utility-maximising behaviour remains ‘rational’ when choices are made on the basis of less-than-perfect information.”

The role information plays in the economy and in influencing fiscal policy is much more detailed than as described above. Beyond the public denials about who has daggers pointed at whom in the fight for National Treasury, the point is that the fabric which has been woven around individuals who lead our fiscal policy is about to snap through what the historian Suetonius called, ‘unbridled ambitions of dangerous men’ – men who will do anything and everything to retain and extend power.

It is not my intention to appear as if I’m applauding Pravin Gordhan. Within the circles of those who made it their business to study the economy, the general assumption is that any decision-maker is supposed to have all the knowledge necessary to make a fully-informed decision. When presenting his 2016 Budget speech, Minister Gordhan and the many individuals working on it understood this. For, in his speech you get the sense of a team leader who is aware that the rand doesn’t just weaken for no reason, nor does the economy almost reach recession status out of the blue.

And so he delivered a necessary budget. Carried on the wings of speech that sought to remind South African business, investors and the world that reckless and uninformed political decisions can’t be reversed but remedying action can be taken – decisively and boldly so.

That said, individual politicians have shown us that they simply do not understand this. I argue, if they did, they would know that in times of economic downturn, countries that achieved sustainability early in their transition from a recession resumed growth sooner and experienced more rapid growth subsequently than countries that did not have great leadership at the helm of their fiscal policies.

Therefore, allow me to depart from the abstract of the politics and remind policymakers that South Africa is faced with the daunting task of maintaining long-term fiscal stability and ensuring its ability to meet future obligations.

Above all, great economic leadership of government is vital in enhancing the credibility of our fiscal policies.

Unfortunately, once again, those leading our politics have been found lacking when it comes to realising that (a) stability and certainty in fiscal policy or any State policy plays a continuously important role in a developing country like ours and (b) decisions on fiscal policy, especially if properly synchronised with the main State policy vehicle (in SA’s case the National Development Plan) can help smooth troublesome business cycles and enable job creation and redistribute incomes.

Generally speaking, fiscal uncertainty is worrisome because it draws resources away from the economy. In other words, investors withhold their money until the political storm raging at economic arm of any government settles.

Moreover, when serious fissures appear between those leading the State’s economy and trust deficits persist, they lead to a buildup of speculation and serious uncertainty that can become unsustainable and threaten macroeconomic stability.

As with all life, South Africa’s economic life cannot afford uncertainty over the future of its finance minister or the taxman’s commissioner. I cannot help but try to unravel my bemusement at how, like clockwork, this inconsistent, inclined-to-be-contradictory public discrediting of men – who fondly call each other ‘comrades’ – always seems to rear its head during the election periods. It’s a season littered with all the signs that led to a now infamous presidential recall.

There is, moreover, an important difference between now and 2008. Unlike back then, when they were claiming to do it for the good of the collective, the coming major political realignment is about power to control the country’s kitty, a frightening development.

A weak fiscal leadership and position can weaken government’s ability to provide credibility – and credibility in an economy that’s competing at a global level.

None of this however is conclusive, but merely my subjective views that uncertainty about the leadership of a key ministry such as National Treasury could also see government losing its role as a credible overseer of markets when it becomes clear that some seek to capture the State for their own personal use.

The saddest aspect of this whole inglorious dilemma is that much of conflicting stirring within the ANC will result in the sins of this current generation of leaders being visited upon the next generation’s economic future.

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