Don’t blame Treasury for the budget say economists

Criticism for an unsatisfactory budget, hampered rollout of Covid-19 aid, and insufficient economic stimulus is being laid at the feet of National Treasury – but economists at the Bureau for Economic Research (BER) say that some of the criticism is unfounded.

In a research note published on Monday (6 July) the BER said that analysts and economists – including a group of nearly 100 experts – are heavily criticising National Treasury for a number of budgetary and economic shortfalls that have come to light in recent weeks.

“A heated debate is raging about the fiscal consolidation outlined in the supplementary budget tabled on 24 June, the BER said.

“The debate ranges from vociferous critique against the planned spending cuts from 2021, to scepticism from rating agencies (and some local analysts) on whether the envisaged cuts could even be implemented.

“In our view, some of the critique directed against the Treasury is misplaced,” it said.

Notably, the group said that the fiscal relief package to support the economy in 2020 is being conflated with the need for fiscal consolidation once the economy is on a stronger footing, which is confusing the many issues facing the South African economy right now.

“Perhaps even more ill-informed, as a group of commentators did last week, is to blame Treasury for the fiscal relief package in effect being much less than the R500 billion announced by president Ramaphosa on 21 April.

“Why some are only waking up to this now is odd – from the start it was clear that the package would not inject a net R500 billion into the economy,” the BER noted.

Other areas where the BER believes Treasury is being unfairly blames is around the delays in distributing the R350 Covid-19 relief to those who are unable to get funding from elsewhere, and the apparent failure of the R200 billion loan guarantee scheme to find beneficiaries.

“The well-published delays with distributing the temporary Covid-19 Social Relief of Distress grant for vulnerable people who do not qualify for an existing grant is not due to Treasury keeping the purse strings tight. Rather, it is a function of wider government inefficiencies,” the BER said.

“The impact of the relief package is also being diluted by low take-up of the R200 billion loan guarantee scheme. Again, the blame for this should not be laid at Treasury’s door,” it said.

Rising tensions

The BER noted that the lack of public funds to do all sorts of things will remain contested terrain.

On Friday, a Treasury presentation to Parliament showed that no further bailouts, other than settling guaranteed debt, will be forthcoming to the national airline SAA, SA Express and Alexkor, the state-owned diamond mine.

“While we support Treasury’s intention, this is likely to raise tension with the public enterprise ministry and the ANC,” the group said.

Fallout from the presentation is already being felt, with lack of clarity around certain points causing upset among unions.

While Treasury made it clear that there would be no more bailouts for the like of SAA, the wording used in the presentation said the airline was insolvent and should be closed.

This pushed opposition party, the Democratic Alliance, to declare that government was finally pushing for the airline to be liquidated, which subsequently spurred fury from unions, who now threat action against any move to shut the airline down – or any state company.

Read: A group of nearly 100 experts have sent a warning about South Africa’s budget – here’s what it says