Posted: 2008-02-20 23:58 Budget 2008 - political dimensions  Presenter: Jane van Renen Guest(s): Jammine, Fakir, Craven - Click here to listen to the interview Summit TV takes a look at the level of political influence on the formulation of the 2008 Budget - also the political effect it’s likely to have on the South African landscape - with Dr Azar Jammine from Econometrix, Ebrahim Fakir from the Centre for Policy Studies, and Patrick Craven from Cosatu JANE VAN RENEN: What’s the political impact of the 2008 Budget speech? With so much going on in South Africa recently - from Jacob Zuma taking over the ANC leadership, questions around Thabo Mbeki’s efficacy, to the energy crisis - has the Finance Minister’s speech restored some confidence to South Africans in general? Joining me to discuss this is chief economist Dr Azar Jammine from Econometrix, Ebrahim Fakir from the Centre for Policy Studies, and Patrick Craven from Cosatu. Ebrahim, Minister Trevor Manuel has said there have been no leftist influences in the ANC that have impacted on his Budget this year - do you agree? EBRAHIM FAKIR: I think this question has to be contextualised within all of this mythological leftward shift that we’re talking about. For me I’m not quite sure what the underpinning is of this leftward shift so to speak, but of course I think this Budget has to be contextualised within the idea of the developmental state - and of course if one looks hard enough you will find both right elements and left elements within this Budget. Those left elements are of course focused on expanding education - an increased funding on education, increases in the level of public service pay to some modest degree, increased pay for the police, nurses in the health sector and so on - so this is basically greater expenditure in the social services sector. But at the same time you also have a 1% cut for corporate taxes - you have a shift in corporate tax rates with regard to moving from secondary tax to withheld tax - so you will find all of these things in the Budget. JANE VAN RENEN: So you’re saying there’s a balance between the left and the right. I think perhaps the meaning of leftist influences in the ANC refers to the preoccupation of more people from the Communist Party within the ANC structure now recently? EBRAHIM FAKIR: There is no doubt that’s the case, but does that automatically transfer into some kind of hardcore policy shift, stance, or policy trajectory if one wills? I’m not sure that one discernibly sees that. After Polokwane the massive challenges we face in this society are around poverty and inequality - yet our focus is on poverty and not reducing inequality. Despite all of the resolutions taken at Polokwane what is the first thing that this new ANC leadership has done? It has focused on relocating the Scorpions institutionally - so I can’t really see that policy manifestation. It may well come in the future - of course once there’s refinement around whether we want to use inflation targeting, whether we want to use interest rates as an instrument for inflation targeting. So those things will unfold over time, but at the moment I don’t think so. I think if you look at this Budget you will find both right elements and left elements. JANE VAN RENEN: Dr Azar Jammine - what is your view on that? DR AZAR JAMMINE: I think people were watching this Budget very closely to see if there would be a leftward shift. One wasn’t sure about this because clearly Thabo Mbeki is still in power as President - and Trevor Manuel is reputed to be very close to him - but I think certainly I was astonished at the extent to which this Budget contains very little of the kind of populist economic policy that people were afraid of, the financial markets have been afraid of, and certainly international investors that I’ve spoken to have been afraid of. The move to cut the corporate tax rate caught me by surprise - I thought they would have done it last year or the year before, before you had a change in the leadership of the ANC. Instead it comes after the change in the leadership of the ANC. Fairly aggressive changes in exchange controls - the relaxation of exchange controls. Persisting with a Budget surplus for the next three years - when many of us thought that they might move towards Budgeting for a small deficit. JANE VAN RENEN: Patrick from Cosatu - are you happy with the 2008 Budget? PATRICK CRAVEN: Not very happy. We think he could have done a lot more in line with the resolutions of the Polokwane conference. He has made gestures towards the change in policy, but hasn’t really developed it to any extent - particularly as far as the main issues of unemployment and poverty are concerned. He’s done the minimal that could be expected. We certainly hoped for a lot more on things like the welfare grants being increased and expanded, and much more vigorous policies on job creation. We summed it up as “after being promised business unusual” today we were back to “business as usual” because there was nothing fundamentally different. JANE VAN RENEN: I see everyone is nodding there. Azar, do you think that Minister Manuel is right in saying that we shouldn’t fear a recession? AZAR JAMMINE: I think he is absolutely correct in doing so. At the same time I was amazed at how positive the forecasts of the government actually are - they’re above most economists’ more recent forecasts, and that suggests quite a lot of confidence that the electricity crisis is a thing of the past and will not interfere with economic growth anymore. JANE VAN RENEN: Ebrahim, what does the fact that taxpayers are going to be contributing R60billion to help bail out Eskom say to foreign investors - how does it add to the political landscape? EBRAHIM FAKIR: I think it’s necessary. It’s a long time coming - it ought to have occurred five years ago. What really struck me five years ago was the dearth and the absolute disregard not just of government but also the opposition parties - in terms of the rules of Parliament opposition parties by their own standards say they want to hold government accountable, therefore they should have asked questions about why government wasn’t making this kind of infrastructure investment at the time not just in generation, but also in the transmission of electricity. None of these things occurred - the opposition parties didn’t ask these questions. Importantly the economists and ratings agencies all supported this argument five years ago - don’t spend, let the capital account balloon, let’s not go into deficit and spend the money. Now five years later we find that we have to spend the money - so I think there’s going to be general agreement that the kind of measures which are taken now are absolutely necessary. Otherwise we simply cannot run the diversity of the economy that we require. At the moment we are looking at industrial strategies - but we haven’t really focused on diversifying the commercial and financial services sectors. That really does need electricity, and without this kind of investment now I don’t think we could diversify later on. JANE VAN RENEN: Azar, is this not a little too late? AZAR JAMMINE: Obviously it’s a little late, but it’s absolutely necessary - it’s absolutely vital at this stage. JANE VAN RENEN: What could Trevor Manuel have said to calm the nerves of foreign investors? AZAR JAMMINE: I don’t think he could have said very much more. He said as much as he could have done, and I think he went a long way towards doing it. I found it quite an inspirational speech in many respects - and if I may say so the kind of inspiration that possibly should have been portrayed in the State of the Nation address. JANE VAN RENEN: Patrick, in terms of the growth in social spending exceeding growth and spending on economic services - is this something that you would like to see more of? PATRICK CRAVEN: Definitely. This ought to have been the main priority. We keep hearing about the need to reassure investors and the business community - but surely the government should also be reassuring the poor who are really suffering at the moment because the increase in food prices is having a very serious effect? Again the measures in this Budget are the minimum that are really necessary to try and just keep people marginally better off or marginally worse off - but we would like to see some real improvements while always making the very important caveat that grants will never solve the problem of poverty. Job creation still has to be the key, and I think the government needs to do more to link these two - to make it absolutely clear that unless we can provide people with proper jobs you’re never going to solve the problem of poverty simply by handing out grants as necessary though they are. JANE VAN RENEN: Azar? AZAR JAMMINE: I totally agree that you’re not going to relieve poverty without creating jobs. The issue about the social grants is the rate at which they are being introduced is now starting to slow down somewhat, and that’s not just due to government’s bloody-mindedness not to help the poor. From my understanding that’s in order to phase in the implementation and the roll-out of those social grants more effectively - to allow it to be done gradually rather than immediately where the money would not then be spent appropriately. JANE VAN RENEN: That might be a bone of contention from your point of view Patrick? PATRICK CRAVEN: Yes, I think ways have to be found to expand the availability of grants. We still favour the idea of a basic income grant, and we’re moving very slowly towards that - but we’re still a long way away, and that means that there are still millions of people who are living in poverty but don’t qualify for any of the existing grants. JANE VAN RENEN: Ebrahim, do you think this is going to be Trevor Manuel’s last Budget? EBRAHIM FAKIR: Very difficult to say. He is on record as saying that the President might be unhappy with him, the ANC may be unhappy with him - but the indications are that I don’t think there’s too many Budgets in Trevor Manuel left. I suspect there’s one or two more and that’s it… JANE VAN RENEN: Azar? AZAR JAMMINE: I think the real proof of whether this Budget is successful or not comes in the implementation. For many years government keeps setting out ideas on how to spend money on upliftment - most importantly on education and training - and yet we don’t see any results. It’s all very well to set aside money for these things - but if you’re not going to see results because of a lack of skills and human capacity to do the implementation you’re not going to get the alleviation of poverty and inequality, and the job creation Patrick is talking about. JANE VAN RENEN: But it’s not a crisis? AZAR JAMMINE: I don’t think it’s a crisis, no. www.summit.co.za Transcripts: onsub1@avusa.co.za tr/mvr/met Comments Related to this transcript: Comment on this transcript... Name : Email : Comments :