OPINION: There is no silver bullet

Norman McFarlane

With Finance Minister Tito Mboweni’s mid-term budget policy statement (MTBPS) looming on the horizon – October 30 – the speculation about what he is likely to reveal is hotting up.

Back in the day when we had a measure of economic stability and a positive economic growth trajectory (that would be before Mr Zuma turned the public purse into his personal piggy bank), the MTBPS didn’t really rate a great deal of attention. It’s typically more a transparency measure, which takes a look at where the fiscus will get its money from, how it will spend it, and how it will manage its debt, over the next three years.

But, in an era of economic stagnation, rising unemployment, inequality and poverty, plummeting business confidence, global trade wars, global political uncertainty, and rising societal anger over government’s manifest incapacity in addressing the ensuing crisis, the times, they are a-changing.

The last few years have seen rising interest in what comes out of the MTBPS, because it could give an indication of possible policy trajectory, which will be the substance of the main budget speech, sometime in February.

For the record, government is incapable of creating jobs, outside of the three tiers of government, and public enterprises, but its policy stance, its actions and its utterances, across a broad front, are critical determinants of our economic trajectory.

We have the dubious privilege of having a public administration which is proportionately greater than the American federal government, with one sixth of the population.

The official unemployment rate – people who are unemployed and actively seeking employment – is 29% (6.7 million) of the economically active population.

The economically active population – those who are employed or actively seeking employment – is, in turn, 22.5 million, just 58% of the working-age population of 39 million.

This means that just over 10 million people out of a total population of 59 million – just 17% – are in formal employment, and therefore contribute to the national fiscus.

This is the tip of the iceberg which funds government, all of its spending (regular and irregular), props up the likes of Eskom, SABC, PRASA, SAA and Denel with endless bailouts, and funds the 17 million social grants paid to the 10.9 million people who would be in abject poverty without them.

If you view this as an upside down pyramid, with this monstrous, crushing burden teetering atop a miniscule tax base, it paints a bleak picture.

It justifies the rising anger of the middle class, the tax paying cohort which shoulders the greatest burden by comparison with the corporate sector, which shoulders the smallest burden.

It gives new meaning, particularly for those born since 1994, to the axiom “born free, taxed to death”.

It explains why so many educated, young (and not so young), mobile people are seeking opportunities elsewhere, and leaving in droves, despite the recent emergence of the #ImStaying movement.

Because, here’s the thing.

Mr Mboweni really can’t say terribly much on October 30, that will make a jot of difference to the gloomy figures which constitute our economic iceberg.

He will tell us what the revenue shortfall is likely to be, estimated at around R50 billion, and he will also tell us what that will do to our debt-to-GDP ratio, which is already a matter of concern.

His recently released economic blueprint received only partial endorsement from the ruling party, which kicks down the road the knotty problem of dealing decisively with Eskom, the single biggest threat to our economic outlook. With a staggering R500 billion debt burden, declining revenue due to declining demand, staggering cost overruns on Kusile and Medupi, the cost premium on fossil fuel vs renewable energy, and a bloated staff compliment that could comfortably be trimmed by as much as 40% (some estimates say 60%), and pay frozen for the next few years, something has got to give.

But with Cosatu and the SACP dead set against any possibility of retrenchments or pay freezes, and President Cyril Ramaphosa making it clear on more than one occasion that no jobs will be lost at Eskom, what remains to be done?

As much as unbundling Eskom is touted as a partial solution to easing Eskom’s woes, it is a red herring. If anything, it will increase the cost burden of running the organisation, because significant portions of Eskom’s administration will have to be triplicated.

And as much as Mr Mboweni might like to allow Public Enterprises Minister Pravin Gordhan to sell off some of Eskom’s aging coal generation fleet and replace it with renewables, President Ramaphosa has already put the kibosch on that notion.

Which is kind of counterintuitive, because the ANC has already conceded that the lowest cost option principle is crucial for our future energy mix. And that means more renewables, less coal.

As much as the unions are adamant that job cuts are out, they stubbornly refuse to acknowledge that protecting the jobs of their members at all costs, effectively contributes to unemployment, rather than doing anything to reduce it.

Despite the unions’ soulful utterances about unemployment, the jobless do not pay union dues. Go figure.

Yes, cutting the bloated civil service and public enterprises, and trimming their bloated wage bills – increases have way exceeded inflation for the last 25 years – would result in an initial uptick in unemployment.

It would also send an important message to the rating agencies and the markets President Ramaphosa is currently wooing in London, that he is serious about structural reform, and that is what is needed to start to breathe life into our economy.