Time to spend the surplus to help the masses up

2008-02-23 00:00

A dramatic political shift has occurred among South Africa’s black majority since the country achieved democracy in 1994, which, ignored by President Thabo Mbeki, helped Jacob Zuma to capture the leadership of the ANC.

Unless the ANC government and opposition parties recognise this political shift, South Africa is heading for absolute disaster. Poorer black South Africans now demand the dividends of the infant democracy: they not only expect the democracy to protect them, but also expect to be included in decisions that affect their lives, and want the five percent average economic growth rates of the past two years to be fairly shared. However, they also want better service delivery and implementation, whether it is kick-starting government’s faltering public housing programme, more efficient public service or dealing with corruption.

Many perceive both the democracy and the economic boom as benefiting only those previously advantaged, such as the white middle class, and a new emerging black middle class, as well as a new class of rich black economic empowerment tycoons. This disjuncture between their own dismal reality in the townships and rural areas and the shining mirage of the economic boom in the suburbs, has fuelled a deep sense of resentment among those on the margins. This sense of dislocation among this group has been increased by falling standards in public services, such as health, education and police service, sluggish service delivery and rising perceptions of public corruption. Mbeki’s great failure is that he and leading ANC figures routinely publicly denied any of these problems even existed, and over-centralised ANC and public decision and policy-making, while not only blunting the teeth of democratic institutions and watchdog agencies, but were also perceived to have abused public institutions to sideline critics. This tectonic shift among the majority of the black electorate means that politics in South Africa can never be the same again.

Ironically, Mbeki did during his state of the nation address hint that he is becoming aware of the political shifts; after being ousted as ANC president. Mbeki aptly described his state of the nation address as “business unusual”. Yet, looking at Finance Minister Trevor Manuel’s Budget, this “business unusual” message is evidently not widely shared by cabinet. For starters, to try to frame the debate as either about defending socialism or capitalism, or about the Left, Right or the centrists, is to spectacularly miss the point.

It is about the reality of the earthquake among South Africa’s black majority and how to deal with it, in a way that goes beyond the current logjam of the narrow ideological framework in which South Africans view solutions. There has to be an understanding that everything, our democracy and economic growth, will break down with dizzying speed, and the tenuous racial relations, exploding crime, and rising social and family breakdown, will rise even further, unless there is an immediate targeted intervention to ease the misery of the poorest individuals and families in South Africa. The good thing is that successive budget surpluses and high economic growth rates give the government ample manoeuvring space to directly ease the desperate plight of the poorest families in South Africa, without breaking the bank.

For another, total revenue in 2008/09 is projected to rise by 12%. Yet what matters is how and on what public money is spent. Manuel does in fact neatly identify what should be the key priorities, but fails spectacularly in channelling the money to these priorities. For starters, it will make sense to sacrifice at least one percent of the growth rate to direct, not trickle-down poverty alleviation measures. This should happen, even though the Treasury has forecasted a slowdown in growth to 4,5%, following the 5,4% percent GDP growth rates clocked up in 2006. Yet, except for the rhetoric from Mbeki and Manuel, the details of the Budget do not indicate they grasp the urgency of the enormous crisis we are facing. If both men grasp the scale of South Africa’s domestic crisis, they will know that at least part of the budget surplus will have to be rechannelled into direct poverty alleviation.

Manuel and Mbeki have insisted that the surplus should be left in the event of a global markets’ volatility. Manuel has maintained the budget surplus at 0,6%. The reality of a coming domestic explosion because the majority of poor South Africans strongly feel they have been short-changed – and they have been, makes insisting on locking away the surplus, recklessly gambling with the country’s future.

It appears that the Reserve Bank’s inflation-targeting regime of three to six percent remains untouched. Manuel said during his Budget speech that “a policy stance that accommodates higher inflation cannot be consistent with a government that is intent on reducing poverty”. This is wrong. There has to be more flexibility on both monetary and fiscal policies. It will be far more prudent to at least lift the top band of the inflation target to eight or nine percent, to free up the economy for both redistribution and growth.

A policy stance that rigidly maintains using a narrow inflation range cannot be said to be focused on poverty reduction, neither is it focused on raising economic growth. None of the fast-growing East Asian tiger economies did it with restrictive inflation targets in place — flexibility and regular adjustments to boost growth were the order. Reserve Bank governor Tito Mboweni’s intention to increase interest rates, making it even harder for poor families to meet home loan and other payments, with prime lending already up to 11%, will only increase a self-reinforcing cycle of both individual and corporate hardships.

Reducing company tax by one percent, without clearly linking it to new investments, job creation or using cleaner fuel is quite short-sighted. It is most likely that the company tax relief will disappear in dividend payments. For another, an alternative could have been to keep the company taxes the same, but then use the R5 billion saved in revenue for pressing social needs. An introduction of a targeted basic income grant to all poor families, as one of the immediate steps to bring relief to the poor, surely cannot be dismissed anymore on the grounds of economics, politics or even ego.

All opposition parties at least agree on the necessity of a basic income grant as an immediate poverty relief tool. Manuel raised the age ceiling for child-support grants to 15-year-olds, which leaves out vulnerable children between the ages of 15 and 18. The Johannesburg Welfare Society’s Jackie Loffell rightly observed that many of the children left out of the safety net will have to leave school and try to integrate into an economy that can never absorb them. “We will continue to carry the costs in terms of crime and a range of other serious social problems affecting our youth,” said Loffell.

The expansion of the school feeding schemes is of course a good thing that will help to keep poor children in school, but it still doesn’t cover most schools in poor areas, and remains limited to primary schools. The Budget did not increase the number of schools in poor areas exempted from charging school fees, neither has it outlined a national bursary loan scheme for poor students qualifying to study at tertiary institutions, repayable to the state after graduation. Manuel’s defence of his spending priorities as that of a “government determined to effect deep transformation and to live within its means” is a “lot of voodoo”.

• Gumede is author of Thabo Mbeki and the Battle for the Soul of the ANC.

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