What will Mboweni do?
Ahead of the MTBPS we call on the finance minister to radically break from neoliberalism – alternatives exist
Alternative Information & Development Centre (AIDC) Economic Justice Team | 22 October 2018
In post-Apartheid South Africa, the country has seen the intensification of neoliberal policies, most recently in the form of the VAT hike, increased fuel prices and the real cuts in key spending areas (including education, human settlements and health care). These policies are deepening the socio-economic crisis in the country. Including mass unemployment, which is close to 40% and as many as 10 million people (when we include discouraged workers and most of the 2,5 million designated homemakers).
The unemployment crisis and huge inequality is manifesting itself in the unravelling of the social fabric in the form of increased crime, substance abuse, mental illness and violence particularly against women. The unravelling of South Africa’s social fabric must be put in the context of a deepening economic crisis based on an unravelling system of accumulation, namely the Mineral Energy Finance Complex, based on export oriented industries (particularly in extractive sectors such as mining and industrial agriculture) and reliant heavily portfolio investment (hot money flows) that distorts the macro-economy. The failure to put an alternative industrial strategy will condemn the country to further stagnation and financial upheavals.
The budget and other macro-economic interventions are urgently required to facilitate a transition to a wage-led, low carbon development strategy that can renew the hope of a “better life for all.”
To this end South Africa requires massive state-led investment strategy. These include a mass housing programme, linked to a rural industrialisation strategy based on land and agrarian reform aimed at securing the country’s food sovereignty. This can be done through a socially-owned renewable energy programme that powers a massive expansion of public transport. Together with the retrofitting of public buildings (including schools) can act as a catalyst towards a sustainable job creation strategy, which can be reinforced by a shift towards an internally oriented economy breaking with an export oriented, race-to-the-bottom model. This will require more state spending not less.
Such a programme will be financed by taxing huge sums of idle corporate bank deposits, re-introducing prescribed assets and using the huge surpluses in the GEPF, UIF and other PIC managed accounts to effectively reduce the borrowing costs of government to service its debts.
It is the debt of the government and its parastatals that has supposedly motivated government to introduce austerity. If, the GEPF and PIC are used as the preferred lender of government to bring down debt service costs, we can immediately end austerity. Every 0.5 percentage point the government can save in debt service cost would save R13.8 billion per year. A reduction from the 6.5% it is currently paying, to 4.5% if it borrowed from the GEPF, would reduce the debt service cost by R55 billion rand a year. The debt service motivation for austerity would then disappear.
There is enough money in South Africa to meet these needs, this money can be found by:
- Combating illicit financial flows, base erosion and profit shifting. This will not only recover huge amounts of resources South Africa annually but it will also mean that workers can be paid better wages. Included in this would be increased financial transparency. Doing this alone will allow the state to recover 4 to 10 % of GDP.
- Taxing the rich, through implementing a wealth tax, increasing taxes on high net worth individuals as well as implementing a VAT on luxury items.
- Restoring the level of corporate income taxes back to 35%.
- ensuring greater compliance by (a) restoring the capacity of SARS, including the re-establishment of the Large Business Centre, (b) instituting the general anti-tax avoidance (GATA) Act.
- Ending corruption and the looting of state resources amounting to more than R50,3 billion.
For more information contact:
Dominic Brown (AIDC Economic Justice Programme co-ordinator) firstname.lastname@example.org / 0813094973
Dr Dick Forslund (AIDC Senior Economist) email@example.com / 0828957947