Friday, 06 March 2015 00:00

Budget Lacks Boldness And Imagination

Finance ministers occupy a critical position in the hierarchy of policy and decision-making. They are not just technocrats but leaders, who manage a delicate balance between the global vicissitudes and domestic economic imperatives. As economic czars, they are responsible for turning around faltering economies.

 

Prominent finance ministers who, in recent times, have had varying degrees of success in boosting their economies include Wang Qishan (China), Nicolas Sarkozy (France), Gordon Brown (UK), Timothy Geithner (US), Ngozi Okonjo Iweala (Nigeria), Manmohan Singh (India), Alexei Kudrin (Russia), and Trevor Manuel (SA).

 

Some, such as Sarkozy, Brown, and Singh went on to head their governments. Others such as Wang and Ngozi became the public faces in the fight against corruption in their countries.

 

The point is that finance ministers are not mere footnotes in the grand events shaped by heads of government. They are themselves key figures that play a transformative role in their countries.

 

Finance Minister Nhlanhla Nene’s technocratic finesse is well-recognised, but that is not sufficient to turn around a sagging economy. His lack of political gravitas is a huge limit, and the one that was reflected in his budget speech.

 

The only tool he seemed to possess in his toolbox was tax hikes, something that has dampened the mood rather than uplift it. In the wake of his speech, our conversations have largely been dominated by the mounting costs to be borne by the middle class. Absent are animated discussions about economic revival.

 

While citizens have a little say on the levying of taxes, they have a fair expectation that the state will demonstrate good stewardship – something that is sorely lacking. Taxes are a crucial part of the social contract between the citizens and the state.

 

In return for their taxes, citizens expect to enjoy the benefits of good and effective governance. When there is a sense that such a social contract is fractured and one-sided, citizens become discontented and distrustful of government. Understandably, rationalization of tax increases when government is not fulfilling its side of the bargain comes across as an insult.

 

It did not help much that there was little courage in the budget to drive deep reforms in government and offer a credible road map for repositioning the economy for better performance. After this missed opportunity, very few would believe that Nene has the political capital to drive long-term economic change.

 

Crucial elements that would have made Nene’s call for social solidarity credible should have included trimming down bloated government and presenting a clear plan, rather than ad-hoc measures, to restructure state-owned enterprises (SOEs).

 

Proposals to reduce the size of the Cabinet would have made tax cuts more palatable, as government would be seen to be leading by example. Cabinet currently has 35 ministers and 37 deputy ministers. Compare this to economies that are much bigger than South Africa: Brazil (24); Russia (33); India (28); and China (25). There is also corpulent diplomatic presence in just about every country, without clear economic returns.

 

On the reform of SOEs, in May 2010 Zuma appointed a Commission to review these. Terms of reference included governance issues, developmental role, and efficiency issues. Three years since recommendations were presented, there is still no plan for their governance.

 

Developing a long-term strategy for their management, and initiation of an “SOE Act” were some of the recommendations. Instead of progress, confusion still looms large over the governance of behemoths such as Eskom and SAA. Taxes are a casualty.

 

The real reason for tax hikes has little to do with social solidarity. We are paying for the cost of indecision, years of inefficiencies in government, and lack of courage from the country’s leadership to do what is necessary to put government and the economy on a better footing.

 

This article was first published in the Business Day, 6 March 2015