PETER ATTARD MONTALTO: Backlash against Mboweni is based on misconception of his powers

This column was first published in Business Day 

What exactly is the point of a budget? This question always seems to be lost.

There is a strange view, always before the event: everyone pleads with the finance minister to do this or that — some particular structural reform. Then afterwards, particularly this year, there is a backlash against the finance minister for not “staying in his lane”. It was the same last year with the “Tito paper”.

These conceptions both overestimate and underestimate the finance minister’s powers. The Treasury has wide-reaching powers in terms of spending and therefore influence over all policy, yet it also has a limited capacity to run everything. Still, it is gifted with some bright young things, and surprisingly has the ability to outdebate others at research and evidence-based policy. This was the ultimate power of the “Tito paper” in 2019 — less so regarding the contents but more so the style.

Now they have had the audacity to pencil in public sector wage cuts. Oh, the wailing and gnashing of teeth! Why would they do such a thing? Maybe due to the enjoyment of screwing over their colleagues from their Pretoria tower? No, more likely they don’t see the point in slashing programmes (early childhood development, school feeding, community health and the like) to pay public sector workers wage increases of between two and four percentage points above inflation.

Theoretical models

Those of a somewhat different disposition will argue that they could have hiked taxes on the rich, chosen the prescribed assets route regarding private pensions, or plundered public sector workers’ pensions in the Government Employees Pension Fund (GEPF).

In life there are some simple rules, some self-evident truths, which the Treasury acknowledges. For instance, GEPF pensions ultimately are held in trust for the workers and are not public property. The contributions to them are not public funds but employer contributions. All the navel-gazing about the balance between contributions and disbursement is irrelevant — they are not labour federation Cosatu’s to touch, nor indeed are they the Treasury’s.

Sure, you can construct lovely theoretical models about using money that isn’t yours, but this misses the point. Cosatu seems to think they are the first to have thought about the problem of Eskom’s debt when many investors have been discussing it for five years or more.

It is the same with ideas of a wealth tax or super-income brackets. These would raise not insignificant amounts in the short term, but hamper broader spending (because wealth is often not liquid or is tied up in business). Ultimately to focus on this is to try extracting more blood from an already dry economic stone.

Hence the focus on structural reforms — a much-derided term but that at its most simple means shifting the cost-benefit ratio of business to invest, create jobs and drive growth. Whacking tax on people skews the cost-benefit ratio the wrong way and becomes self-defeating — those who want more tax because inequality is high will end up hampering those who are meant to be reducing inequality by hiring more workers.

Plunder pensions

It is far better trying to get more blood out of more economic stones. I am sure the Treasury would much rather be spending, say, 20% more money because the economy is 20% bigger after a few years of faster growth.

When I am feeling particularly misanthropic, I sometimes wonder if the Left should not just get their way: plunder the GEPF pensions, have a R500bn stimulus, impose wealth taxes and slash interest rates by 250 basis points. Yes, there would be a moderate immediate growth spurt but at a larger long-run cost. Such plans can only work in one’s mind if you view with disdain the private sector, companies and particularly small and medium enterprises as the ultimate engine of growth.

  • Attard Montalto is head of capital markets research at Intellidex