The content on this page is not written by Polity.org.za, but is supplied by third parties. This content does not constitute news reporting by Polity.org.za.

Dear friends and fellow South Africans,

The country has once again gone through the ritual of receiving a new
budget for the State from the hands of the Minister of Finance, and
wondering what it means for the country as a whole.

Too often the perception prevails that what is good for the State is
good for the country as a whole and that the budget of the State
discloses a cornucopia of benefits which the State is to bestow on as
many people within society as possible. Therefore, most of the debates
surrounding the presentation of the State budget focus on whether
enough has been made available to many of the State's programmes for
the delivery of services.

Rarely is attention focused on the fact that, like everything else in
life or in economics, the States budgetary allocations come at a cost
to somebody or something else.

In reflecting on this cost, I do not wish to detract from the
importance of the role that the State performs within our society. I
just feel that there are enough politicians, commentators, analysts
and pundits heralding the necessity of State interventions in our
economy and society. I do not need to add my voice to that chorus. My
role is that of balancing the debate and improving the understanding
of those who are not experts on the subject, by bringing to the fore
that which often remains unspoken.

The starting point remains the old and painful axiom that the State
makes no money and produces no wealth of its own. Therefore, all the
money it spends comes exclusively from those who create or have money
or wealth, either by taking it directly from them in the form of
direct or indirect taxation, or by taking it from them by borrowing
that money from third, unrelated parties who will need to be paid back
eventually by the same people who are being directly or indirectly
taxed.

In the end, sooner or later, anything spent or borrowed by the
Government needs to be paid or repaid by you and I, or our children,
or our grandchildren, with no exception.

Some of the money we give to the State is a function of us creating
wealth, which accounts for us paying income taxes. But often a great
deal more is money which is taken from us after we have paid taxes on
our income, or even if we produce no income, as is the case for the
many indirect taxes we pay, ranging from VAT to fuel levies,
electricity tariffs and the myriad other forms and occasions on which
our daily life forces us to part from some of our money to give it to
the State.

In this process, generally speaking, it is the State that decides how
much of our money we can keep and how much we can part with. The
corrective to this seemingly unfair reality is that we Members of
Parliament, and therefore the representatives of the people, must
approve with a law of our own not only the amount of money that the
State takes from its citizens, but also the details of how the State
will spend it. This should make it fair and satisfy all concerned.

Two issues, however, must be considered. At what point do we take from
the citizenry so much money that we end up contracting the citizens'
capability of producing more money, or maintaining their living
standards? Otherwise put, at what point does the opportunity cost
built into the use that citizens would make of the money they are
forced to give to the Government begin eating into the Government's
own pursuance of its intended social goals? Or, if one wants to put it
in childlike terms, at what point does one start starving the goose
that lays the golden eggs? In Parliament, we really don't know the
answer.

At this time of unprecedented economic crisis, with the mounting
recessions in Europe, with the prolonged economic downturn in the
entire Western world, and with South Africa in a much worse economic
position than Minister Pravin Gordhan wants us to believe, these
considerations become very relevant. The new budget has not cut State
spending, but has dramatically increased it. In order to avoid
increasing the deficit, which is the measure of what we keep borrowing
every year and add on to a national debt which nobody knows whether,
when and how it will ever be repaid, the Minister of Finance had to
increase the amount of money he has chosen to take from the citizenry,
and therefore is raising taxes and the overall fiscal burden on the
citizen.

Otherwise put, because the economy is contracting, Minister Gordhan is
taking more money out of it to be spent by the State. His
justification is that the State will spend its money in such a good
and wise way that it will produce an anti-cyclical effect, which means
hoping that it will expand the economy and counter the cyclical
contraction.

The problem is that we don't know whether the extra money taken out of
our economy to be spent by the State will not cause a further
contraction of the economy. In that case, the fiscal maneuver of the
State would result in the so-called ?contraction trap', in which the
State itself causes further contraction of our economy by virtue of
the actions it takes in order to respond to previous contractions.

The further dilemma is that there is no evidence that the bulk of the
money the State spends is actually aimed at creating an anti-cyclical
effect and will promote viable economic growth. The Minister repeating
that that is the case as many times as he does, does not necessarily
make it so, and may indeed suggest that he is protesting too much and
trying to convince us of something that is far from self-evident, even
to him.

Per se, social programmes and redistribution of wealth do not
necessarily affect economic growth, or the overall size of the
economic pie.

The much-vaunted construction of infrastructure is mainly about
keeping us at the level we are at, without sliding back. I will not
comment on the growth value of the new proposals for economic
development zones, because the details are yet to be fleshed out.

At this point, we can only wonder why the economic development zones
to be placed in non-nodal and non-core areas would succeed in
producing real and sustainable economic growth when ten years of
experience of Industrial Development Zones placed in the most crucial
economic infrastructure of our country have cost tax payers much more
than they have created for our overall economy. One can only be
extremely perplexed, but hopeful that some clarity to this dilemma
will eventually be offered, possibly in economic terms and not with
grand populist demagoguery.

Therefore, the issue of economic growth rests on what the Department
of Trade and Industry does to stimulate manufacturing. This is
Government funded economic growth, which means that its added value is
created by the money taken from all of us as citizens and transferred
to both domestic and foreign industrialists in consideration of their
willingness to create job opportunities.

Greece had a great deal of such government funded growth and, when it
was no longer sustainable and the State faced bankruptcy, Greece
rapidly went from a 4.7% economic growth rate to almost minus 7%.
Greece has taught us the need to differentiate between real economic
growth and government funded economic growth.

Minister Rob Davis tries to shy away from this differentiation by
postulating that Government assistance is merely an incubator of new
industries which will then grow up into economic adulthood, no longer
requiring the State to act as their sugar daddy through direct
subsidies and a strong network of regulations, tariff and non-tariff
trade barriers and restraint of competition which enable such
industries to extract from all of us a much higher price for their
goods and services than they otherwise could if the market were
unregulated and open to foreign competition.

Yet we do not know which one is the correct metaphor; that of a child
bound to grow into independence, or a delinquent teenager who gets
addicted to subsidies and protections as one would to drugs, with no
reason to ever give them up. World experience and common economic
sense would make one inclined to opt for the latter.

The second of my grave concerns is that we, the representatives of the
people, should be grappling with all these issues and finding the
right solutions. Our efforts should embody one of the first
constitutional democratic principles, entrenched for the first time in
the Magna Carta; the principle of no taxation without representation.

Yet, in the past eighteen years, our democratic Parliament has done
what the old Apartheid Parliament always did, namely pass the budget
in exactly the same form, down to the last cent, as it was introduced
by the Minister of Finance. This has not changed, even after
Parliament finally gave itself the power to change the budget
introduced by the Minister in any way it wishes. It is quite an
unlikely outcome that Parliament and the Minister would have exactly
the same mind on all issues and budgetary allocations, and this
outcome should be almost impossible in times of crisis and
uncertainty, like the present.

It might be more likely that Parliament just does not have the
capacity, aptitude or inclination to seriously apply its mind to these
issues. If it did, the Parliamentary Budget Office would have long
been established and all the petty excuses which have thus far delayed
it set aside.

Perhaps, like during the time of Apartheid, Parliamentarians may just
like the easier job and lesser workload of debating a budget rather
than redrafting it. If we consider how the so-called budget debates
deal with general issues of policy, abstractions and often
irrelevancies, rather than actual economic discussions, analysis of
budgetary allocations and cost-benefit analysis between what the State
spends and what the citizens could do with that money, one may be
inclined to believe that such is indeed the case.

One would hope that this time around Parliament may rise to a higher
standard of performance and do more of that which the citizenry
rightly expects of it.

Yours in the service of our nation,