The Treasury is making the party leadership feel the pain of directing money to SAA from libraries and schools.
This column was first published in Business Day.
Behavioural psychologists use the concept of “mental accounting” to refer to violations of the fungibility principle in thinking about money. We tend to put different value on money depending on how we label it — “savings” is much more important to us and we resist spending it, compared with, say, getting a tax refund, which is easy to blow. So we do stupid things such as run up credit card debt while putting money into savings accounts at the same time.
Money, however, is fungible. A rand is a rand no matter where it comes from. This is deeply embedded in the national budget framework. All money goes into the central revenue fund. Ring-fencing for specific purposes, depending on the source of the cash, is forbidden by the constitution. The decision on how to spend revenue is separate and unconnected to its source. But this makes it hard to clarify the consequences of choosing one spending priority over another. Our cognitive machinery is not wired to see the things that are not being budgeted for, only what is.
So it was interesting political theatre when deep in the documents for last week’s medium-term budget policy statement (MTBPS) came disclosure of budget lines that are being cut to find R10.5bn for SAA.
There were cuts to the community library services grant (R14m), the health facility revitalisation grant (R52m), the HIV, TB, malaria and community outreach grant (R224m), the National Health Insurance grant (R42m), the school infrastructure backlogs grant (R336m) and the provincial emergency housing grant (R273m), among other things.
By putting this list together, the Treasury is playing to our behavioural biases. It is making the decision to fund SAA real and making people feel it. Schools will go unfixed and HIV, TB and malaria outreach will be curtailed.
This performance is consistent with the irrationality that has surrounded thinking about SAA. As I’ve written before, there are no good reasons to save the airline. There is nothing it does that can’t be done by private operators with less cost to the taxpayer. But back in January, the decision was made at an ANC lekgotla to save it, by a group of people who cannot have thought hard about it. For them, it was a decision focused entirely on the things you get, not the things you fail to get as a result. Of imagined benefits, without care of the opportunity costs. The ANC instructed cabinet to make it happen, and that was the final word.
The Treasury, and all right-thinking people really, have resisted in every way possible. But, ultimately, the decision had to be followed through. The best option now available is to extract a political pound of flesh in return for it. Our mental accounts divide the pot of money into little parts and we feel it when we see one of those being interfered with.
The Treasury is reaching into the minds of the ANC’s national executive committee and making them feel the pain: communities not having access to libraries and the National Health Insurance scheme losing resources. Pain that is not felt when spending decisions are separated from funding decisions in line with the fungibility principle.
That the Treasury has to play this sort of game illustrates the political realities it must contend with. Gone are the days when it was disparaged as a “government within a government” that wielded power over all of the government’s activities in the Mbeki era. Now it is just the keeper of the purse. That remains a powerful position but it has lost much of the authority to influence policy that it once had. It is reduced to ensuring spending is done right, but not what to spend on.
That is a profound problem for the wider political economy. The Treasury, more than anyone, can see the opportunity costs. It has to say no to many requests for funding when it draws up the budget but has lost influence over the policies that force these decisions. Its loss in power is profound and consequential because it can’t optimise expenditure to deliver the best bang for the buck, but instead must bend to political will from wherever it comes. So it is doing what it can to show other political constituents that there are serious consequences.
And indeed there are. One gets the feeling that few in the government properly understand the fiscal crisis we are in. They would surely be making a far greater noise about the cuts that are now budgeted to be made across the government, including R28bn next year alone to the public service wage bill and R23bn of cuts in transfers and subsidies.
Instead, the reaction has been a disturbing smile and nod, as if the Treasury doesn’t need to be taken seriously. That if R10.5bn can be found for SAA, then money can also be found for other things they want.
This attitude leads only one way: financial collapse and a loss of sovereignty to our lenders. If the Treasury cannot rein in spending, there really will be no other outcome. It is time that the rest of the government gets the shock treatment it needs to understand the situation we are in. And if it takes violating the fungibility principle to do it, so be it.
Theobald is chair at Intellidex.