By Len Verwey,
The 2011 Budget will be released against a more favourable economic backdrop than the 2009 or 2010 Budgets, which were drawn up amid recession and job-loss.
But the current degree of economic recovery and the slightly more favourable fiscal position we are in should not blind us to the continuing unemployment crisis in the wake of the recession.
Active industrial policy has to be a cornerstone of the effective developmental state, but we simply do not have the required common front between government, labour, business and civil society to achieve it.
After a contraction in output of around 1.87% in 2009, available information suggests that the South African economy grew by a little less than 3% in 2010. In recent remarks, the Governor of the Reserve Bank indicated that the Bank anticipates growth of around 3.5% for both 2011 and 2012.
These rates of growth are moderate and remain lower than pre-recessionary ones, and suggest that the now familiar challenge of how to achieve more with less will remain with us for some time. Equally importantly, however, they remain aligned with the growth rates anticipated in the 2010 Budget and MTBPS for 2011.
In other words, the 2011 Budget will not have to contemplate further cuts and austerities as a result of unanticipated shocks.
Furthermore, since the 2010 Budget and 2010 MTBPS were particularly cautious in their assumptions about the recovery of tax revenue, it is likely that government will in fact have some extra revenue at its disposal now, even after allowing for an accelerated reduction of the deficit and therefore a reduction of the future debt burden.
The broad parameters of budget policy are likely to remain unchanged over the medium-term, with a continued focus on social allocations, including the social grants, and the continued large allocations going to education and health. We can, however, expect further emphasis on the ‘social contracts associated with these allocations: thus, for example, the Minister is likely to follow the President in requiring more commitment and discipline from teachers, and there may be more emphasis on linking child support grant eligibility to school attendance and other requirements.
South Africa is not necessarily in an institutional position to ensure that the use of tax incentives actually leads to decent jobs being created. The New Growth Path calls for “solidarity, sacrifice and partnership” in achieving higher and more equitable growth. But too many experiences suggest that these are precisely the non-technocratic, intangible but crucial ingredients that hamper delivery in many instances. The failures of local government, of the National Skills Development Strategy, of small-business support, amongst others, justify a degree of scepticism regarding a new growth path if it is not accompanied by decisive leadership and institutional change.
These failures are not the fault of government only, of course, and they point to continued problems in achieving the kind of multi-stakeholder consensus which is required if we are to move forward, and which has characterised, without exception, successful developmental states. What we may hope for, though, is a renewed urgency in finding solutions, a recognition that the failure to do so will have serious implications. The solution, furthermore, must be based on a shared willingness to work at finding a consensus, which in turn requires a degree of pragmatism in economic debates rather than conflict from polarised, entrenched positions.
Len is Manager of the Budget Unit of Idasa’s Political Information and Monitoring Service.
The 2011 Budget will be released against a more favourable economic backdrop than the 2009 or 2010 Budgets, which were drawn up amid recession and job-loss.
But the current degree of economic recovery and the slightly more favourable fiscal position we are in should not blind us to the continuing unemployment crisis in the wake of the recession.
Active industrial policy has to be a cornerstone of the effective developmental state, but we simply do not have the required common front between government, labour, business and civil society to achieve it.
After a contraction in output of around 1.87% in 2009, available information suggests that the South African economy grew by a little less than 3% in 2010. In recent remarks, the Governor of the Reserve Bank indicated that the Bank anticipates growth of around 3.5% for both 2011 and 2012.
These rates of growth are moderate and remain lower than pre-recessionary ones, and suggest that the now familiar challenge of how to achieve more with less will remain with us for some time. Equally importantly, however, they remain aligned with the growth rates anticipated in the 2010 Budget and MTBPS for 2011.
In other words, the 2011 Budget will not have to contemplate further cuts and austerities as a result of unanticipated shocks.
Furthermore, since the 2010 Budget and 2010 MTBPS were particularly cautious in their assumptions about the recovery of tax revenue, it is likely that government will in fact have some extra revenue at its disposal now, even after allowing for an accelerated reduction of the deficit and therefore a reduction of the future debt burden.
The broad parameters of budget policy are likely to remain unchanged over the medium-term, with a continued focus on social allocations, including the social grants, and the continued large allocations going to education and health. We can, however, expect further emphasis on the ‘social contracts associated with these allocations: thus, for example, the Minister is likely to follow the President in requiring more commitment and discipline from teachers, and there may be more emphasis on linking child support grant eligibility to school attendance and other requirements.
South Africa is not necessarily in an institutional position to ensure that the use of tax incentives actually leads to decent jobs being created. The New Growth Path calls for “solidarity, sacrifice and partnership” in achieving higher and more equitable growth. But too many experiences suggest that these are precisely the non-technocratic, intangible but crucial ingredients that hamper delivery in many instances. The failures of local government, of the National Skills Development Strategy, of small-business support, amongst others, justify a degree of scepticism regarding a new growth path if it is not accompanied by decisive leadership and institutional change.
These failures are not the fault of government only, of course, and they point to continued problems in achieving the kind of multi-stakeholder consensus which is required if we are to move forward, and which has characterised, without exception, successful developmental states. What we may hope for, though, is a renewed urgency in finding solutions, a recognition that the failure to do so will have serious implications. The solution, furthermore, must be based on a shared willingness to work at finding a consensus, which in turn requires a degree of pragmatism in economic debates rather than conflict from polarised, entrenched positions.
Len is Manager of the Budget Unit of Idasa’s Political Information and Monitoring Service.
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