Open Letter to MPs: We must reject austerity

31 October 2019

Open Letter to Members of Parliament,

The medium-term budget statement by Minister Tito Mboweni seems to have brought little clarity on what government is going to do to fix our economy. True, he rang the alarm bells about the national debt but his solutions in terms of spending cuts does not convince. Especially as he does so in the name of austerity; an approach that has been severely criticized internationally even by members of the IMF.

Wide ranging budget cuts will do much damage to the economy as it will reduce aggregate demand for goods and services which is what the economy sorely needs. Our finances are indeed in a mess but so is the real economy. The statistician general has revealed the manufacturing sector shed 30,000 jobs; construction 24,000; trade 21,000 and utilities 18,000. If we fix the debt problem and neglect the real economy what will we achieve?

This does not mean that we do nothing. The reports of the Auditor General, the Zondo Commission and many other reliable sources have revealed the scale of wrongdoing in the whole public sector. There has been outright theft, inflated tenders, wrongful expenditure and many other distortions. Let Treasury and other relevant branches of government seriously initiate action to recover these billions and that will be a good start.

But it is not enough. We badly need a stimulus to kick start economic activity. Financing should come from a variety of sources in order to spread risk. And if it leads to a slight increase in inflation we can tolerate that as international evidence has shown.

The point is that every businessman knows that if you want to expand your business you need capital and that often means an overdraft from the bank. If that overdraft is used for luxury goods, you are sunk. It has to be used to expand the business in order to get a greater return from which you pay off the debt.

Government faces the same choice. If you use your debt to pay for bonuses, for luxury cars, for corruption, for Gupta tv stations then you will go down and this is what we have done for a long time.

We need a stimulus dedicated entirely to productive enterprise, including physical infrastructure, especially in the townships. This kind of spending will boost our productive sectors, this is where we can create jobs, and this will increase demand which will in turn stimulate productive effort. It will also force us to take training much more seriously.

Parliament will be debating the Minister’s speech. We need to change the focus to the productive economy. That is where we need growth and that is what produces the finance to get us out of the financial mess. It is also what the masses are yearning for.

Prof Ben Turok

Director

Institute for African Alternatives (IFAA)

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