Mid-term budget: Should govt spend its way out of trouble?

Finance Minister Enoch Godongwana will have to accomplish that cliched “balancing act” in his maiden medium term budget policy speech today … as have many before him in that portfolio.

As the South African economy has stagnated – even before the Covid disaster it was in trouble – there has been increasing pressure on the government to implement a fiscal stimulus programme as a way to jumpstart business.

More than that, a fiscal package would have to include significant elements of social spending to help alleviate the poverty which is threatening to become a socio-economic timebomb.

This poverty has been made worse by the job-killing effects of Covid and its lockdowns.

Certainly, part of the fuel on the flames of the failed insurrection in July would have been anger from people in impoverished communities.

However, increased spending on social programmes flies in the face of commitments by previous finance minister Tito Mboweni to cut back on government spending and move towards an austerity approach in budgeting.

Even without the need to jump-start the economy out of the Covid stall, the austerity promises meant little in reality.

The ANC has still to bite the bullet and reduce the country’s bloated and largely inefficient civil service.

To implement more cutbacks in social spending – as contemplated by Mboweni and his advisors, would be to destabilise society and cost the ANC heavily in the popularity stakes.

There is also the harsh reality that tax revenue has been flat and there is very little blood left in the individual taxpayer stone for the authorities to extract.

Although few economists would agree that a government can spend itself out of trouble, perhaps ours does need to inject money in various places to stimulate demand and, more importantly, keep poverty at bay for our people.