PETER ATTARD MONTALTO: Where is the new economic stimulus debate?

Posted in: Economics, i-Blog, Politics, South Africa on December 31, 2020


The quest for new ways to support the economy against a fiscally constrained backdrop cannot be over.

This column was first published in Business Day.

I find myself in an odd position — pointing out the looming fiscal cliff risks ahead yet also scratching my head at the almost complete lack of debate over the forthcoming abrupt end to the existing stimulus and the lack of new economic support for coronavirus hotspots.

President Cyril Ramaphosa announced on Monday that the country was moving into an “adjusted level 3 lockdown” — but no mention at all followed of any additional support for the new hotspots or the hospitality industry, which would be most directly affected.

There was an angry press release from Cosatu while others on the left sounded off on Twitter — though neither really seems to indicate a more visceral and practical political outrage, while at the ANC’s national executive committee (NEC) meeting there seemed to be nothing but the sound of silence.

Maybe this was the government realising the PR nightmare of the first non-existent R500bn in stimulus. But to mention nothing at all seemed bizarre.

Other countries have introduced hotspot-related support plans. The UK created a per capita grant to local government in areas locked down, while the US is reintroducing stimulus cheques as well as extending other forms of employment support.

The issue is not just a muted debate in public but there is no real sign whatsoever that this debate is being had by the government at all.

Maybe the Treasury has been somewhat over-effective this year in turning down the volume of the debate on broader stimulus (it would be overgenerous to say it won the debate). Yet, more importantly, maybe the lack of any zero-based budgeting or expenditure reviews of any depth in the medium-term budget policy statement (MTBPS) prevented a solid debate on distributional choices in the existing fiscal framework beyond a simplistic wage bill versus the rest focus, important as that still was.

The quest for new ways to support the economy against a fiscally constrained backdrop cannot be over. This means accelerating expenditure reviews (and gathering the necessary capacity so that the Treasury doesn’t have to) in order to free up existing space, but also prompt honest conversation.

Next year will be defined by the race among countries to reach herd immunity. What level that is in terms of share of the population is still greatly contested, but let’s take 60% as an order of magnitude. Currently the government seems to have no firm plan when to reach that point nor the facilities or funding to make it happen. The private sector will ultimately have to do it — but this key point could well be reached only at the end of 2021 or into 2022.

A number of possibilities exists for taking the blame for the messy and delayed vaccine procurement process and confused communications — but a debate over making room for about R10bn of on-balance-sheet funding should have started in the government back in April, to allow for speedy decisions on a variety of different providers with clear targets for rollout.

Equally, the costs being cross-subsidised from private to public sector is an elegant solution but a unit tax on private medical schemes could have been paid for by the cancellation of the SAA bailout.

The first quarter of 2021 will be a challenging time as the Covid-19 support grant ends in January. Politically it is easily extendable, although the Treasury seems to be holding the line for the moment. The Unemployment Insurance Fund (UIF) schemes will end too while other facilities such as support grants for small, medium and micro enterprises (SMMEs) and tourism never really got off the ground and are forgotten.

The UIF scheme should be extended to cover businesses in hotspots with registered addresses given (as Business4SA has shown) that the UIF has enough liquid assets to finance such a scheme. Banks should put their heads together for a well-advertised scheme for hotspots and the Treasury should consider what reallocations of money sent down to lower levels of government can be reallocated for things such as rates relief for SMMEs.

These are just ideas, but ideas are lacking at the moment on how to offset the economic impact of not only the second wave now upon us but also a possible third and fourth surge in 2021 before widespread vaccination has been carried out.

Also lost is a sense of the scale of need. As with load-shedding, maybe the public has become immune to stories about unemployment or GDP data still well below the highwater of end-December 2019. There also exists an inability to compute the effects of inequality on bad headline data  — in the National Income Dynamics Study-Coronavirus Rapid Mobile Survey (Nids-Cram) and elsewhere — data that isn’t bad enough to properly signal the economic pain of much of the population

R2m Porsche

Indeed, the fact that excess savings and access to credit allowing a rich South African to buy a R2m Porsche can offset the loss of income and consumption in a poorer neighbourhood of say 500 households — is the kind of reality that is very much South African yet underappreciated.

The second wave Nids-Cram study showed 11% of households reporting child starvation and 37% running out of money for food in June — down on April, and likely to have come down again in September but still unacceptably high.

At Breadline Africa, a Cape Town-based early childhood development charity where I am a trustee, we saw a shift from our usual early childhood development (ECD) infrastructure and partnership focus towards emergency feeding earlier in the year. In Cape Town alone demand was met for 1.5-million children’s meals from the end of March to September. But crucially it still has had to support the provision of 25,000 meals a week even before the new lockdown. This is just one corner of the country — the scale is underappreciated.

Indeed, it puts things such as the public sector wage bill and state-owned entity (SOE) bailouts into perspective.

The fiscal cliff edge cannot be ignored but equally meeting our evolving needs within the fiscal framework and how those needs must be ranked and categorised not with a recovery in mind but subsequent surges and lockdowns — will require an important debate and shift in mindset. February isn’t far away at all — decisions have to be made now.

Monday night’s address should be the start of a new debate. For now, we largely seem to be on autopilot to (and beyond?) the February budget.

Attard Montalto is head of capital markets research at Intellidex. 

 

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