State has to spend us out of this jam

Iwas excited to read a piece in Business Day this week by former Treasury official Owen Willcox, who suggested the department, albeit unwittingly, had stunted growth in SA.

“There is no fiscal problem in SA, even as debt-to-GDP creeps higher. There is a growth problem and it manifests in a fiscal problem. Until we diagnose the problem correctly, the solution will elude us,” he wrote.

Making up about 30% of the South African economy, the state is a sizeable beast in our lives, so the fact that it has been cutting its spending in recent years has had a significant impact.

Ratings agencies, whose analysts read the same news pages that we do and follow the same Twitter feeds, point to a rise in our debt-to-GDP ratio as a warning sign for the Treasury, which for more than two decades has done a worthy job of running our finances.

But the question now is whether it has been doing its job only too well.

There’s this idea that corporate SA is sitting with wads of cash that it is ready and willing to plunge into the economy once the politicians get their house in order and the political infighting stops in Luthuli House or the Union Buildings.

I have news for anyone who nurtures that idea: it’s a foolish notion.

Feuding and rivalry in the ANC will rage on for years to come. When the party was in charge of a healthy, growing economy in the years before the Great Recession began in 2007, the feuding was perhaps less intense.

But over the past 10 years or so radical policy proposals that seemed unnecessary when growth was close to 5% have received

plenty of attention and have fed into a fall in business confidence.

Which brings me to the political situation in Britain, a country that is in a mad panic and is on its third prime minister in nine years. It almost looks like Italy, or Japan before Prime Minister Shinzo Abe’s current term.

When David Cameron took office as prime minister in 2010 through a coalition, Britain needed to rein in government spending in the aftermath of the recession.

The banking sector was in dire straits and the sovereign debt crisis that followed hard on the heels of the recession had all of Europe cutting back on spending.

Cameron, along with his chancellor of the exchequer, George Osborne, focused on austerity.

At the start of Cameron’s term this might have been necessary. The cuts hit hard across the country, though London itself was somewhat cushioned by its well-entrenched private sector.

Despite the economic recovery, by 2016 a sizeable slice of the British electorate was so fed up with “elites” in London and Brussels that they voted to leave Europe.

The Brexit referendum led to Cameron’s resignation, and Brexit also did in his successor, Theresa May.

It was all down to the unintended consequences of austerity.

Though our National Treasury is loath to define what we are going through as austerity, that is really the only word for it.

As it stands, the government has billions of rands in outstanding debts to the small businesses that everyone, including finance minister Tito Mboweni, says are fundamental to an economic recovery.

State-owned enterprises are not spending because they are frozen by the interrogation of their processes that resulted from their collapses in governance in recent years.

It’s been more than a decade since SA had a fiscal surplus and the government felt free to spend to stimulate the economy.

If, now, the state continues to act and speak in terms of austerity, who is going to stimulate this economy? Especially as the political noise only gets louder.

There has to be change in the austerity message of the past few years.

I know that in November, the threat of another ratings downgrade looms again.

But this economy is shrinking in real terms; how does that help meet our debtfinancing costs?

It’s wrong to expect solutions from the Treasury, because much like a CFO in any corporate enterprise, it follows a strategy set by the CEO and his board.

The country’s CEO — in this case President Cyril Ramaphosa — is more highly regarded by the markets than was his predecessor, but the question is, can he get the space and the trust of his board — that bloated ANC executive?

If the state acts in terms of austerity, who is going to stimulate this economy?