The new GNU shows no sign it will reduce Treasury's 'outsized influence' over policymaking

Finance Minister Enoch Godongwana’s announcement on 15 July 2024 that Cabinet has “accepted” his predetermined fiscal framework is the latest in a succession of examples of the minister and Treasury presuming to dictate government policy direction, rather than following a democratic process and mandate.

While we may have new faces around the Cabinet table, their ability to meaningfully change South Africa’s fortunes will be hamstrung if the National Treasury retains its outsized influence over policymaking. Treasury remains intransigently and dogmatically committed to a fiscal strategy that has contributed to poor economic growth and deteriorating public services.

This 7th Administration must break with the status quo that has prioritised reducing debt by cutting government spending on essential services. Social and economic investment must be at the forefront of the government’s responses to unemployment, hunger and stagnant growth.

Over the election period, the Treasury has shown little regard for democratic mandates and processes. About a week before the president announced his Cabinet, it issued its guidelines for the Medium-Term Expenditure Framework (MTEF) – or requirements to guide government department budgets.

These effectively restrict the policy direction of the new government. They stipulate that spending must remain lower than revenue, relying on increased private-sector participation in electricity, rail and infrastructure development through Operation Vulindlela to produce growth.

The issuing of the guidelines followed an earlier reassurance from Treasury to the markets that it would maintain a “balanced fiscal stance” (where revenue equals spending, so far achieved by cutting spending) regardless of the approach desired by the ANC and its coalition partners.

But the fiscal stance is not the Treasury’s decision alone to make. Such actions pre-empt and undermine government policies and by extension the will of voters. They divide and rule by pitting departments against each other in a zero-sum game over what functions get priority. The biggest losers in this game are the people, who depend on government services.

Sadly, there is currently little to suggest that Treasury’s iron grip on policy will change under the new Cabinet. The minister of finance has retained his role, and the only notable personnel change is that he now has a DA deputy. Rather than challenging Treasury’s failed economic policy, the DA is expected to be its greatest cheerleader – there is little doubt its loyalty is to the markets. The DA supports doubling down on regressive policies such as fiscal rules to limit government borrowing, privatisation of key state-owned entities (SOEs), and public-private partnerships (PPPs).

If Treasury’s prescriptions are followed, the government will spend R518 less per public healthcare user, and more than  R600 less per learner over the next three years. This will have adverse impacts on health and learning outcomes.

The envisaged shift from state-led infrastructure development to PPPs will introduce profit incentives to the provision of basic rights – driving up user fees and hindering access to services, particularly for the most vulnerable.

The negative impact of PPPs is well-evidenced internationally. They have driven up the price and driven down the quality of water in Nepal; blown out road user costs in Peru while needing to be rescued by public money; and capsized the UK’s railway system to the degree that the new government intends to bring it back into public ownership.

This is not to deny that the new administration faces some real fiscal challenges such as low growth and revenue, and high debt service costs. But it is to appeal yet again for reasonable people to recognise that these challenges are caused in large part by the neoliberalism that Treasury, and conservatives in the ANC, the DA, and elsewhere, continue to peddle as the cure.

The rest of the world has woken up to the fallacy that reduced government spending plus free markets equals growth equals poverty reduction. Why is South Africa still mulishly waiting for austerity to save us?

The ANC’s massive drop in support at the election would suggest that the public does not want a continuation of the prevailing macroeconomic order.

We need a coordinated and democratic plan for job creation and growth. The celebrated primary budget surplus has been achieved on the back of an intolerable squeeze on healthcare, education, and social grants, which in turn has contributed to unemployment. The continuation of this policy needs to be assessed based on its real-world costs and outcomes.

Below we outline some alternative priorities that the Cabinet should consider, to make a real difference to the economic situation of the country, beginning with those who have suffered the most. We venture that alongside unlocking sustainable and inclusive development, these would also assist in securing the longevity of the current government.

1. 
   

   Raising revenue to resource the realisation of human rights

   
   

2. 
   

   Public investment in social and economic infrastructure

   
   

3. 
   

   Growing key sectors of the economy

   
   

4. 
   

   Implementing a universal basic income grant (Ubig)