A new budget model must be matched by a new policy model - Polity

17 June 2020 - As he prepares the supplementary budget, finance minister Tito Mboweni is looking to restructure not just what is spent, but also how the budgetary process is carried out.

Terence Corrigan

As he prepares the supplementary budget, finance minister Tito Mboweni is looking to restructure not just what is spent, but also how the budgetary process is carried out. Instead of using the past year’s allocation as a base to determine the current year’s expenditure, his proposal is that every item be determined and justified anew.

The operative phrase is zero-based budgeting.

As the minister remarked to the National Assembly last week: ‘In other words, [we should] refocus our attention on those strategic issues that we can do, refocus our attention on the growth-enhancing activities, no longer take for granted that the baseline that was there last year, will always be the case.’

This is an intriguing idea. With the onset of the Covid-19 pandemic, South Africa’s fiscal position has deteriorated from perilous to catastrophic. The budget deficit, according to IMF projections, will stand at as much as 13%. Marshalling the country’s strained resources more prudently and effectively is a matter of profound importance.

If such a system is introduced, it could shake up state spending for years to come. If it is successfully implemented, a great many politically sensitive but otherwise questionable projects stand to be put under the knife.

But, while doing this would be helpful, it will not address South Africa’s underlying problems: that for a decade, it has failed to achieve anything like the growth that it needed. Without this, the country could never expect to generate the revenue on which the government’s ambitions depend.

Much of this is due to a policy mix that has pushed investment away, complicated entrepreneurship and disincentivised employment.

Racial empowerment policy is one example. Whatever its aims – and these are in some ways quite laudable – it has imposed significance costs on doing business and provided a veneer of respectability for rent-seeking and outright corruption.

The empowerment deal between the ANC-linked Chancellor House and Hitachi was one example of this. The pursuit of race-based empowerment was central to much of the malfeasance examined by the Mpati Commission into the Public Investment Corporation – in effect turning the pensions of people in the public sector into payoffs for connected insiders. The Bosasa scandal was another; it is also one that demonstrates how such policies can be suborned for the benefit of people who do not even belong to the ‘racial’ group they are intended to benefit.

Indeed, there has even been criticism from within the ANC of the unproductive profiteering that these policies have encouraged – the so-called ‘tenderpreneur’ phenomenon. ‘This thing of having a bottle of water that you can get for R7 procured by the government for R27, because you want to create a middle-class person who must have a business, is not on … It must stop,’ said Gwede Mantashe, then party Secretary General, in 2012. This comment has renewed significance in the context of an empty fiscus.

Empowerment policy has also been flagged as a deterrent for investment. A 2018 study of European firms operating in South Africa identified this as the most important obstacle to expanding their operations. This view is not an exception, although given the ideological centrality of the policy to the ANC, this is expressed very cautiously, or very privately.

But few will defend the policy on its current record. During his tenure as finance minister, Pravin Gordhan put it bluntly: ‘BEE policies have not worked and have not made South Africa a fairer or more prosperous country.’

These outcomes are not, incidentally, unique to the operation of these policies in South Africa.

So, the question becomes whether this is a policy that should be pursued. If it has failed to propel growth and to promote broad-based prosperity, would it not make sense to seek an alternative? Following the proposed budgeting system, South Africa might look towards a form of zero-based policy-making.

We at the Institute of Race Relations have proposed an empowerment model based on socio-economic disadvantage rather than race; and one that encourages and incentivises business to do what South African society most desperately needs it to do – to invest its resources, to expand its operations, to bring more people onto its payrolls and to contribute more to state revenue.

South Africa cannot continue on the policy path it has been following. Minister Mboweni’s coming budget will in all likelihood bear stark witness to that. The time has come to do things differently.

Terence Corrigan, project manager at the Institute of Race Relations. Readers are invited to join the IRR by sending an SMS to 32823 (SMSes cost R1, Ts and Cs apply).