The Supplementary Budget and the moralisation of austerity
Busi Sibeko |Amandla 71/72 | September, 2020
We are once again being told that “there is no alternative” to austerity – the cutting of expenditure to address debt during economic downturns. The general public is being forced into “disaffected consent” to the current status quo, on the basis that we don’t have a choice. This has been strengthened by Treasury’s insistence that government spending makes no difference and is futile in the face of rampant corruption. The current moment reminds us of how austerity was brought into the public consciousness after the 2007/8 Global Financial crisis (GFC). It created a new normal.
After the GFC, there was a brief stimulus (increased spending). Then, many countries across the world implemented austerity in pursuit of economic recovery. There was a concerted effort to re-define the global financial crisis as a supposed “fiscal crisis” – a crisis due to government spending, rather than the systemic irresponsible behaviour of finance capital. There was a moral appeal to shared sacrifice, suffering, and collective obligation to correct the failures of the fiscal crisis – this was the moralisation of austerity.
Across the world, governments used the analogy of a household budget to provide a familiar logic to government finances. It made sense in the public consciousness that government, like a household, couldn’t spend more than it has.
Since at least 2014/15, South Africa has followed suit, and the public has been made to believe that austerity is the only viable solution to our economic woes. It has been disguised as “fiscal consolidation,” “rebalancing”, “cost containment” and “stabilising the public finances”. But the dominant narrative has been that cutting national budget expenditure will help to address South Africa’s “runaway” debt. Now, this logic has seeped into the economic and social relief measures for Covid-19, and the public has deliberately been duped into believing that the hands of government are tied.
Before the budget, Minister Mboweni stated that “we’re no longer as rich as we once were”. The implicit message was that the Covid-19 response would be constrained by our income in the same way that a household would be. The Supplementary Budget was meant to fund the Covid-19 rescue package. Instead, it was re-defined as a moment to tackle our “fiscal crisis”. So it states that the “Supplementary Budget sets out a roadmap to stabilise debt, by improving our spending patterns, and creating a foundation for economic revival”.
It is therefore not surprising that, despite the looming socio-economic crisis, the net increase to the original 2019 Budget was just R36 billion. That’s less than 1% of GDP. Like the 2008/9 responses, the increase for this year, according to Treasury, needs to be accompanied, in the medium-term, by budget cuts so that we can achieve a surplus. This poses grave risks. Over the past decade, many governments who implemented austerity underestimated the importance of government expenditure in preserving the economy and aiding recovery.
The President’s package indicated a R50 billion allocation towards social grants. The Supplementary Budget allocated only R41 billion. Low uptake was the justification. Meanwhile, there has been a systematic exclusion of applicants. The criteria have been particularly punitive to women who are registered care givers within the system. The logic has been that they are already “beneficiaries” of government programmes. So they should not be recipients of additional government relief. As a result of being a care giver, these women have been excluded from the Covid-19 special grant. This is despite women having higher unemployment rates than men, with black women having the highest rate of 46.2% prior to the lockdown.
In addition, despite calls that grant increases should be for each beneficiary (child), the government has proceeded with increases for each care giver. So the benefits are unequal – they depend on the number of children the caregiver is responsible for. This approach perpetuates the idea that “we must share the costs”. So we get policies that are blind to existing structural inequalities. As a result, women, children and the vulnerable have been the most negatively impacted by austerity.
Job protection and creation
Only 6% of the R100 billion the President set aside for the protection of jobs is actually allocated for this year. International evidence shows that successful economic relief and stimulus packages have to be timely (and temporary and well targeted). Despite this, now, well over 100 days later, there are no concrete plans for using these funds.
The Supplementary Budget vaguely allocates the remainder of the money to the medium term. This is despite there being no public discussion about how the remainder of the R94 billion could have been utilised for sorely-needed emergency relief.
R20 billion was allocated to health spend in the R500 billion package. That seems like a sizeable sum. However, after taking into account the reprioritisations and “baseline reductions”, the net increase to the Health Vote, despite the current health crisis, is actually only R2.9 billion. And this comes after of sustained previous per capita declines in healthcare expenditure.
There have been many reports of corruption in procurement for health-related goods and services. So the public has become wary that the money is being utilised poorly. Alarmingly, given our recent history, a national treasury official stated that “we might have been naive in terms of thinking people would do the right thing, that they would follow the law and make sure the focus is on the pandemic and impact thereof”. This fails to take responsibility for the lack of adequate institutional planning to avoid corruption.
Past experiences demonstrate that economic packages have an increased risk of corruption and fraud. This is because there is more limited oversight in the face of the need for speedy implementation. This blunder has been followed by a change in procurement guidelines. And again, this corruption feeds into the narrative that government spending does not make a difference.
Credit guarantee scheme
According to National Treasury, at the time of the Supplementary Budget R10 billion of the R200 billion allocated to the business loan guarantee scheme had been accessed. That’s a fraction of the need. Uptake was highlighted as a key obstacle, with criteria being too stringent. In line with the moralisation of austerity, this limited uptake has two components: 1. it gives the illusion that government is safeguarding public finances, and 2. the low uptake argument makes it seem as though it is the fault of the businesses, not of the government.
This fails to acknowledge that stringent criteria like this hinder the success of the economic intervention itself. So they have massive ramifications for business survival. In other countries, credit to companies has been made rapidly available. The US Small Business Administration disbursed $349 billion in 13 days through an online portal. And they implemented a second stimulus program aimed at helping SMMEs. Corruption aside, it is possible to disburse much needed business assistance in a timely manner, and allocated funds should serve their purpose. It is the duty of Treasury to preserve the economy. The costs of them not doing this work are too high.
The national budget is not like a household budget
The national budget is not like a single household budget. First, the government has the ability to directly control money supply within the economy through tax and monetary policy. They can generate more revenue by raising taxes, and they can print money, make available credit and borrow from the public. Second, government spending is a significant proportion of an economy’s total spending (over 30% of GDP). That means that the impact of government spending on employment, wages, procurement of goods and services across the economy is massive. This spending in turn impacts government’s tax revenue. Government spending and borrowing directly affect growth. So the government can generate income for itself in the future. As individual people and families, our spending on groceries is totally different.
As a result, globally, austerity has failed on its own terms and proved to be self-defeating. Instead of economic recovery, austerity has brought about recession, stagnation and worse inequality. Contrary to expectation, the debt situation has got worse – debt-to-GDP ratios have increased because GDP has shrunk. Austerity has proved that it is not economically viable. And the social costs are enormous. The household analogy has only served as an intellectual cover to justify expenditure cuts that undermine service delivery and harm the economy.
We must question why an austerity logic dominates the thinking of Treasury. We have had years of cutting budgets, and yet we pay increasing amounts to service the debt. And the debt is still increasing.
The choice of austerity is not purely a technical one. It reflects a political process. We must resist efforts to moralise us into thinking that there are no alternatives. The national budget is capable of much more than a household budget.
Busi Sibeko is an economist and researcher at the Institute for Economic Justice.