One of my least favourite jobs as a financial journalist was to attend the finance minister’s budget speech in a locked room in Pretoria. Dozens of journalists bashing out the same figures with no real context, then trying to get comment from political opposition and economists. It was a tedious task, and I doubt the average South African paid much attention except to find out if tax on beer and cigarettes had gone up.
I always thought budgets were scientifically packaged lies. Lies about what government had done, what it will do, how it is clamping down on corruption.
I always found it better to wait a week or so, let the dust settle, and then assess how badly we had been shaken down.
8 lies about budgets
Here’s eight immutable rules I learned about budgets:
- Economic growth projections are always wrong
- budgets always contain bad news
- government always grows, never shrinks
- taxes go up, never down
- cock-ups made by politicians are your fault, so you must pay
- paying taxes is an honourable thing, a mark of patriotism
- believe us when we say we intend to stamp out corruption and waste
- you’re in good hands.
You can make your own list.
Here’s another certainty about budgets: government always over-estimates economic growth. In the February 2018 budget the growth forecast was 1%. By October is had shrunk to 0,7%. The rest of the world is expected to grow 3,8% this year, and China 6,6%. South Africa is rapidly disappearing into global irrelevance, driven at breakneck speed by two decades of the government folly.
This means we are probably in a contraction. As Michael Hudson has pointed out in J is for Junk Economics, we need to take out the finance, insurance and real estate figures since these are based not on actual economic production but financial and bookkeeping entries. They falsely inflate the economy.
There remains this naïve belief that government has somehow got the situation under control.
Here come the shockers
Here’s another shocker finance minister Tito Mboweni slipped by us: bailouts of state-owned enterprises (SOEs) are to continue. SAA is getting another R5 billion, Sanral R5,8 billion and the SA Post Office R2,9 billion. As the Free Market Foundation points out, it’s time to privatise these nags. If the SOEs were all privately owned, taxpayers would not be burdened with these costs. An enterprise is intended to make a profit and if through poor management and inefficiency it is incapable of competing, it should be closed or sold, not become a perpetual burden on taxpayers.
This is where ideology has grown into a hydra-headed monster. There are 9,6 million unemployed in SA, equivalent to about 40% of the total workforce. This includes 2,5 million discouraged workers who have stopped looking for jobs. Minimum wages are cutting them off from the economic mainstream, so they go underground, literally, doing zama-zama work in abandoned mines. Do away with minimum wages, let the unemployed work for whatever they can get, and allow them to become consumers. That is how the economy will grow – by creating consumers.
The welfare state
SA is now officially a welfare state. Once addicted to the opioid, it’s almost impossible to get off it. There are 16 million people on some form of welfare in SA, and perhaps we should add that to the public sector wage bill, which absorbs 36% of the country’s budget. This is the big danger to the budget going forward. Says the Free Market Foundation: “Over time, wages have crowded out investment, particularly in health, education and defence. Around 85% of the increase in the wage bill is due to higher wages rather than headcount increases. Correcting this untenable situation is being obstructed by the labour unions, which is a matter of serious concern. The country cannot be held hostage because of political affiliations.”
Sanitary pads and cake
I lied when I said budgets do not have good news. Here’s a nugget to cheer your day: sanitary pads are to be zero-rated for VAT. And cake flour.
Municipalities are falling apart, cannot deliver basic services, handing over millions to the corrupt VBS Bank, and you will have to pay for each and every stolen and squandered rand that has disappeared into these giant holes. But you can at least eat cake and get tax off your sanitary pads. Shut up and be thankful!