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Lumkile Mondi
Deputy Finance Minister Mcebisi Jonas last week called for a New Economic Consensus to replace the 1994 Agreement. According to Jonas, a critical mass in society – emanating from within the state; the higher education sector; the business sector, established and new; and labour and civil society, including the media – must be mobilised to support a number of policy choices that can rapidly transition the economy out of its low-growth, high-inequality trajectory.
This call was strategic and opportune, coming as it did on the eve of the budget, delivered by Finance Minister Pravin Gordhan on Wednesday.
Over the past 23 years, many South Africans who fought for freedom believed the ANC to be the vanguard movement, well informed about the material conditions, social relations and productive forces shaping the country.
The ANC would, they reasoned, pursue a pro-poor agenda to benefit the majority of South Africans.
Even when the Reconstruction and Development Programme was dumped in favour of the Growth, Employment and Redistribution policy and its successors, the Accelerated and Shared Growth Initiative of SA and the New Growth Path, many South Africans remained loyal to the governing party, despite criticism by those inside and outside the ANC that a neoliberal agenda was being pursued.
Those loyalists have come to rue their steadfast ANC attachments as this week’s budget speech made it patently clear that the ANC had become a shadow of the leadership it had shown to such effect in 1994. It was divided, ethnic, corrupt and anti-democratic.
There are some in the ANC who are willing to sacrifice the country to pursue their own interests. They show scant concern for the economic consequences of their actions, particularly on the poor. For example, the consequences of redeploying the former finance minister Nhlanhla Nene in December 2015 had a huge upward spiral on food prices.
And now we see the debacle in the SA Social Security Agency, which threatens the livelihoods of about 17 million recipients of social grants.
Principles outlined
Last week, the country was also greeted by the surprising news of respected ANC MP Makhosi Khoza having been moved out of her position on Parliament’s Standing Committee on Finance to a new role in the public service and administration committee.
There has been a raft of corrupt dealings over the past few years, but the Nkandla fiasco tops them all. It symbolises a leadership that has placed itself and the party first – doing so while claiming to be at the service of all South Africans.
Despite all the shenanigans that long-suffering citizens have been witness to, expectations for this year’s budget were high.
In line with the proposals espoused by his deputy, Gordhan put more flesh on the transformation skeleton by outlining the principles that should guide this agenda. These include the following points:
- The litmus test of our programmes must be what they do to create jobs, eliminate poverty and narrow the inequality gap.
- Transformation must be mass-based, benefiting the most disadvantaged South Africans through the creation of new assets, capabilities and opportunities to build livelihoods.
- Mobilising private and public investment in social and economic infrastructure, new technologies and new activities that help build a modern and diversified economy.
- Confronting cartels and collusion robustly and providing new opportunities for access to markets.
- Reshaping cities and building linkages across the rural and urban landscapes where fragmentation and separation characterised past patterns.
- Transformation must achieve a more balanced structure of ownership and control in our economy.
- Transformation should build on and strengthen democracy, and entrench open, transparent governance.
- Transformation must build self-reliance in South Africans, reject the dependence on debt and protect our fiscal sovereignty.
- Transformation must result in an economy that belongs to all, black and white, where the legacy of racial domination is no longer visible.
These feature in strong contrast against the latest state of the nation address, delivered by President Jacob Zuma two weeks before, in which he made radical economic transformation the new order of government business.
According to Zuma, radical economic transformation means “a fundamental change in the structure, systems, institutions and patterns of ownership, management and control of the economy in favour of all South Africans – especially the poor, the majority of whom are African and female – as defined by the governing party, which makes policy for the democratic government”.
These differences indicate the contrasting positions people hold within the ANC. Such differences of opinion exist also in business, trade unions and civil society.
A prerequisite for a new political settlement is a combination of power and institutions that are mutually compatible and sustainable in terms of economic and political viability. We are not there yet.
South Africa is more deeply divided today than it was in 1994. Race and class are shifting elements in the mix.
Zuma, who is supposed to unite and bring hope to the majority, divides citizens by his utterances on so-called “white monopoly capital”. Right wing conservatives and opportunists in the ANC and in the white community revert to identities at their convenience.
"Double-edged sword"
The new political settlement proposed by Jonas has been deferred by the 2017 budget placing a burden on those earning more than R1.5m a year. The personal income tax increase to 45% has shocked many high earners, among them the black middle class, sometimes referred to as “clever blacks” by Zuma.
The term “middle class” in South Africa takes on various meanings. For example, for marketers the middle class are consumers, or the so-called black diamonds; for economists large categories of people are differentiated for policy purposes; while sociologists will battle to define groups. However, all classes are incorporated into most professions.
Some categories of the black middle class are beneficiaries of affirmative action and employment equity policies initiated by the ANC government. These include government officials, managers in the private sector and independent consultants.
Some are in debt and have enrolled their children in private schools. They tend to resent corporate life, despite working there, as they feel increasingly removed from the ladder to success. This group will be negatively affected by the 45% tax hike as their disposable incomes will drop.
They face a double-edged sword. Their pursuit of the good life is compromised by the poor use of state resources on the one hand and by corporates curtailing their ambitions on the other. Some also drive petrol guzzlers and will be affected by the fuel levy increase of 30c a litre.
Within the black middle class there are entrepreneurs who have benefited from the government procurement system in the past. They would have been excited by the government procurement programme, about 30% of which is aimed at them. Depending on what entity they have used in accessing opportunities to deal with government, they should be smiling that the corporate tax remains at 28%.
This group may be concerned about how their taxes are being deployed by the state – justifiably so. Should the current mismanagement in certain state entities continue unabated, and the state undermine the rule of law, this could lead to collective action, as witnessed in the post-Nene debacle.
The black middle class may not be organised today as a political formation, given that it is scattered among various professions. But if coordinated into a civil body, this group could become a powerful player in helping to transform South Africa in partnership with their white counterparts, particularly in a new political settlement.
Gordhan may have reached a ceiling in mobilising resources from personal income tax. His next available options will be value-added tax, currently 14%, and the 28% corporate tax.
The minister may be opening an escape route should the forecast 1.3% of gross domestic product growth not materialise. In the next two years of the medium-term budget period (2018 and 2019), taxes will have to increase to fill R15bn and R16bn shortfalls, respectively. This is a recipe for further divisions in our already fractured society.
We need the New Economic Consensus espoused by Jonas, but without strong leadership, it cannot happen. It remains to be seen which powerful political and social formations will gather ground and meet at the negotiating table. Tougher economic times and an even weaker ANC government may just be what it takes to get the New Deal on the go. For now, we ride the roller coaster.
Mondi is senior lecturer at Wits School of Economic and Business Sciences.
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