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Dear Treasury, in SA’s case a surplus isn’t indicative of an economy doing well

There is a danger in stubbornly pursuing a budget surplus when it is not focused on a stimulus to recharge the economy and, ultimately, the public good.
SA’s leaders don’t seem to realise that if all aspects of the economy are doing well there is a possibility of the country achieving an actual surplus, says the author. Image: GCIS

For many, the fact that the Medium-term Budget Policy Statement (MTBPS) revealed that government is striving for a budget surplus is not the red flag it should be.

In the 2021 MTBPS, National Treasury declares: “The fiscal strategy remains broadly unchanged, with a focus on achieving a primary budget surplus from 2024/25.”

Why is government so keen on a primary budget surplus, presenting it as the be-all and end-all of its fiscal approach? Is that approach informed by the assumption that having a surplus means the country is doing well in managing its finances?

I am not an economist. However, in grappling with Treasury’s love of surplus and why it is pursued so doggedly, I find myself leaning on the readings of scholars who are essential to economic thought. In the book Human Action: A Treatise on Economics, Ludwig von Mises argues that the misreading of economic doctrines by advisors and economists has often led governments’ monetary policies astray, to the detriment of the public.

I want to add that by clinging to these doctrines, in the face of changing local and global economic contexts, not only monetary but fiscal policies have disappointed when applied in practice.

The implications of careless reading of ideas on policies, and how incorrect application can turn out, is something Von Mises understood.

Have our leaders and their advisors not learned that if all aspects of the economy are doing well, then there is a possibility of achieving actual surplus, because this depends on the action, path and context of the time?

Furthermore, who is the government trying to convince: itself or investors?

How, and in what way, will a positive primary balance be achieved in the next three years? By prioritising surplus over delivery deficit? The latter speaks to the protracted underspending at a local level that undermines the allocation process.

Yes, key areas such as health, education and social services are often prioritised in the budget. However, that action never addresses the important matter of where and how it is spent.

While it is true that a primary budget surplus is desirable, the purported notion of a surplus being preferable while most South Africans are worse off due to the adverse effects of the pandemic (among other factors) on their lives and livelihoods, must be challenged.

The ideological approach of democratic South Africa, where private-sector principles are applied to the public sector, has brought us to this moment.

For example, profit in the private sector demonstrates a healthy company and dividends for shareholders. This is juxtaposed to government resources that must be supplemented by raising funds to finance public activity.

If the fetishisation of surplus is because the government is trying to show investors that fiscal policy and the country’s financial management are doing well, we are mistaken.

Investor confidence will not overlook social unrest like that witnessed in Gauteng and KwaZulu-Natal in July, surplus or not.

Investors might indeed frown upon a surplus that is achieved against unmet social needs that worsens the lot of South Africans.

It may be acceptable in the private sector to not meet unions’ wage demands or even pay workers lower wages. However, government cutting or reducing social relief grants or the budget for healthcare is not appropriate.

Furthermore, the pursuit of a surplus raises further questions such as, to what end? How will it grow the economy? I am sure there may be a perfectly sensible reason why a surplus has become the poster government policy. However, in the face of disenchantment, inequality, hunger and crisis youth unemployment, which one of these issues will this surplus attend to first?

Why do the bureaucrats, advisors and political principals at Treasury believe that a budget surplus is a good thing for South Africa? Is the belief based on macroeconomic demands or fear of being perceived as terrible custodians of national money?

The mimicry of private sector activities that has led to an obsession with budget surplus must be questioned until we, the public, are given an answer based on practice that applies to the country’s conditions, so that we may know if the surplus (i) serves the public good, (ii) is a chest-out-look-at-me spectacle, (iii) is used to improve the lives of many as a form of social welfare booster, or (iv) is merely to demonstrate fiscal discipline.

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I disagree on multiple levels on this one.

Firstly, Carl Menger, Ludwig Von Mises, and August von Hayek were the founding members of the Austrian School of Economics, the only economic theory that precisely explains and predicts the boom-bust cycle. Only the Austrian School offers a crystal clear perspective on the ultimate driver of bull and bear markets. Without a basic knowledge of this theory, investors and traders are flying blind.

Secondly. the Austrian School is vehemently against deficit spending because the deficit can only be funded through the fractional reserve banking system and the Reserve Bank. The same government that issues a banking license forces those banks to buy government bonds. Deficit spending implies money printing. Money printing implies that the purchasing power of the currency is used to finance government spending. This implies that the purchasing power of the social grant is used to finance the social grant. Robbing Paul to pay Paul with the hope of getting a few votes from Paul in the process.

Thirdly, if deficit spending raises the money supply, asset prices will increase. Wealthy people own assets while poor people do not. Therefore, the process of deficit spending channels wealth from poor people to wealthy people, a Robin Hood gone rogue. The process impoverished many, while it enriches some. This process leads to growing inequality and social unrest.

Money is the agent of trust between strangers. When the government debases the currency, they also debase trust among individuals in society. This results in Xenophobia. The Holocaust was a direct result of uncontrolled deficit spending.

The author may quote Keynes here, but it is improper and almost blasphemous to quote Von Mises.

It’s a case of penny wise and pound foolish except you don’t have the penny you only think you have it.

There may be a transitory financial surplus, thanks to the mining sector, but in terms of morals, ethics and integrity, SA is bankrupt.

With the ANC in the vanguard.

End of comments.

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