SONA 2019: Bigger Government

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President Ramaphosa delivered his second state of the nation address (SONA 2019) and concrete promises were made. This was a marked departure from the Zuma years where we had become accustomed to empty rhetoric.

It was rather unfortunate then, that most of the proposals would either keep things the same or make them worse. To be sure, to those who have been following South African politics, this was hardly a surprise.

Eskom

Economists and investors have highlighted Eskom as the biggest single threat to the South African fiscus. In response, Ramaphosa has announced a planned restructuring which would see Eskom split into the three parts of its core business: Generation (responsible for the power stations), Transmission (responsible for the national grid) and Distribution (responsible for delivering power to consumers). According to the president this will allow costs to be contained with each entity and to some people this sounds like the entities that cannot sustain themselves would be allowed to fail.

Sadly, these people don’t know how powerful South African trade unions are within the ruling party. They simply will not allow any type of restructuring that leads to job losses and any privatisation step would necessarily involve introducing efficiencies. A separate company in charge of the national grid potentially frees up space for private providers and therefore challenge Eskom’s monopoly. Market pricing of electricity would be a hoped-for consequence.

The best possible outcome is that Ramaphosa plans to break Eskom’s monopoly on electricity generation, but it is important to remember that the transmission company will still control access to the grid, and therefore the power to set prices. In any case, it is too early to tell where this will go and what Ramaphosa has planned.

Fiscal stability

Apart from the hope of privatising Eskom, none of the other two biggest risks to the fiscus (welfare and public sector wages) were mentioned in Ramaphosa’s speech. Yet again, trade unions are the biggest obstacle to reducing the 35% of the budget spent on their members’ salaries by government. This has been increasing at an annual average growth rate of more than 10%.

When it comes to welfare it also seems unlikely that Ramaphosa will have any political room to maneuver. The economy is in dire straits and cutting welfare spending has the potential to trigger a revolution, the ANC will not want to risk this having seen the Arab spring and the yellow vest protests in France.

To deal with the serious fiscal issues and reduce our more than 55% debt-to-GDP ratio, the economy will either have to grow, or one of the above-mentioned costs will have to shrink. The problem is economic growth will almost certainly require some reduction in taxes, therefore Ramaphosa has to choose between social unrest from the poor, or trade unionists.

Property rights

Ramaphosa continued with his usual trick of framing the attack on property rights through changing the constitution to allow EWC as “accelerated land reform”. This is despite the overwhelming evidence that they are much better ways to accelerate land reform. In his speech, Ramaphosa also implied that EWC was necessary in order to optimise the economic benefits from agriculture, including jobs in the sector. This goes against an economic impact assessment done by Dr Roelof Botha at the Gordon Institute of Business Science (GIBS) which found that EWC could lead to 2.28 million jobs being lost and a catastrophic drop in capital formation.

Based on that study alone, nothing matters as much as getting rid of EWC, if Ramaphosa genuinely wants to see his wishlist come to fruition. As I have written before, EWC is nothing but legalised theft. It is a policy that will achieve the exact opposite of the stated objectives behind its implementation.

NHI

Ramaphosa made it clear that the government plans to proceed with the implementation of the NHI, he claims that it will make healthcare free at the point of use for all South Africans but of course this is not the case. The NHI simply means more taxes for South Africans on top of the taxes they already pay to fund public healthcare.

Cross-subsidization means that young people and those who have worked hard and made a decent living for themselves will be punished for those things. Being young and working hard are soon to become taxable offenses in South Africa (to be fair, we already tax success through the progressive income tax and a minimum wage has the effect of a 100% tax on the unemployed youth)

Jobs

It wouldn’t be a SONA without rhetoric about jobs and “our people”, and it is here where the fact that government has run out of ideas is most apparent. The usual band-aid solutions, like a youth employment tax incentive (extended for a further 10 years), youth employment service (internship scheme that was supposed to create 30 000 jobs a year but has apparently only created 2000 since it was launched), etc. Of course no mention was made of labour regulations such as collective bargaining and the national minimum wage.

The fact that so many South Africans (almost 10 million now) have no means to support themselves should worry each of us greatly. It is a crisis waiting to happen, but Ramaphosa would rather secure his position in the ANC by appeasing unions. If you’re poor and unemployed, no improvement is on the horizon while this government is in power.

The Economy

More talk about industrial parks and special economic zones. It is almost as if the government cannot conceive that people can do things for themselves. Instead of his government getting out of the way of poor people, Ramaphosa plans to insert himself to an even greater extent in their lives under the guise of helping them. I am reminded of a quote by Ronald Reagan “The most terrifying words in the English language are: I’m from the government and I’m here to help.”

Almost every single intervention meant to help South Africans has exacerbated their economic problems. While a few cronies have benefited from these policies, the vast majority of people have suddenly found new obstacles in their path in addition to the old obstacles. We simply need a government that is in the business of removing obstacles now but that is not what we will get.

Corruption

The parts of Ramaphosa’s speech dealing with this got the most positive reactions from most South Africans, that just shows you that being a sucker for punishment is a culture here. People refuse to accept the simple fact that a government that does too much in the private lives of its citizens inevitably abuses that power and becomes corrupt. After Jacob Zuma, the sane response would have been demanding institutional reforms (no, bringing back the Scorpions doesn’t count, Remember how easily they were dismantled before?).

But instead we have seen South Africans pin their hopes on one man as they have always done. We never learn.

Even if we do get prosecutions, as Maimane said so passionately after the SONA, the problems that led to the massive corruption we have seen lie in the fact that we have a government that has too much involvement in the economy.

Government should have strict constitutional limitations over how much it can tax as well as the things it can spend on. Regulations in the economy should be minimised, if not abolished. Property rights as a last guarantor of the rights of the citizen against criminal acts from their government should be strengthened.

Conclusion

Ramaphosa ended his speech by quoting former US president Teddy Roosevelt

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat. “

It is clear that Ramaphosa sees himself as the strong man, the man in the arena, the doer of daring deeds. If indeed South Africa needs such a man, we are in big trouble because it means one man can have that much power over all of us in our society. It means that this Ramaphosa period is but a brief respite from the coming of the next Jacob Zuma or something much worse.

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