Business Day column: Difficult times do not turn a bad budget into a good one

08 March 2017
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Finance Minister Pravin Gordhan addresses a briefing ahead of his budget speech. Picture: ESA ALEXANDER/THE TIMES

What does it mean to say last week’s budget was a good one "crafted in a difficult time" (Business Day, February 22)? Why does a Financial Mail writer call it a "masterstroke", given the challenges? A common response to budgets has been to commend them … in the circumstances. Does the qualifier mean failed policies legitimise bad budgets?

This budget is bad because the government will consume more wealth than ever, more than ever will be consumed by debt and antiprosperity controls will be intensified rather than, as promised repeatedly, relaxed. A budget of this magnitude, without liberalisation to generate growth, promotes stagnation, unemployment, discontent and instability.

In his budget speech Finance Minister Pravin Gordhan said he wanted transformation with growth. What made the drumbeat of those two words — used 54 and 50 times — appropriate is the extent to which he was for the former and against the latter.

Statistician Garth Zietsman does an annual calculation of Tax Freedom Day (TFD), the day South Africans start working for themselves instead of the government — "the day corresponding to the proportion of wealth taken by the government … so that 50% tax is midyear TFD".

TFD regressed from April 26 in 2009 (32%) to the record of May 26 in 2011 (40%), then eased to May 15 in 2012 (37%). This budget proposes the second-worst TFD, May 19 (38%).

"By far the most important budget number," Zietsman says, "is how much of the nation’s wealth government consumes, because prosperity coincides with small or contracting government and poverty with big or growing government". Stagnation with "radical transformation" dooms black South Africans to advancing only if white people are radically impoverished. Since white people are outnumbered 10 to one, every transformed rand provides beneficiaries with only 10c minus the cost of government. To justify extremism, the budget repeats trendy twaddle that "95% of wealth is in the hands of 10% of the population". It is especially reprehensible since it appears in a budget that places 38% of the wealth in government hands.

Furthermore, Gordhan knows that civil servants, through the Public Investment Corporation, are the country’s biggest owners of listed shares, and that much of the remaining wealth is in government hands through such entities as the Industrial Development Corporation, Eskom, municipalities and the Land Trust. Since the government has no balance sheet, no one knows how much wealth is "in its hands". It is obvious from data submitted to his department that the 95% mantra also bears no relation to the distribution of nongovernment wealth.

Red tape reduction, one of the preconditions for prosperity, was promised in former budgets and state of the nation addresses, in the National Development Plan and by diverse ministers. The Cabinet promised it through socioeconomic impact assessments. Why was the empty promise not repeated in this budget?

Instead of reversing the tsunami of regulatory diarrhoea, the minister wants to proceed with "twin peaks" financial sector control — every citizen’s financial affairs will be taxed and regulated by a gigantic new bureaucracy. We know from the Financial Services Board fiasco it will be antitransformation and yield no identifiable benefits.

"When will they ever learn?" asked Pete Seeger in the world’s most celebrated protest song — Where have all the flowers gone.

• Louw is executive director of the Free Market Foundation

This article was first published in Business Day on 1 March 2017

 

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