Pravin Gordhan unpacks Michael Sachs’ resignation

SIMON SHEAR

Gordhan spoke to the SA Jewish Report following Sachs’ resignation this week, which most analysts see as a protest against executive interference with Treasury’s independence.

Sachs’ resignation follows reports that President Jacob Zuma was to impose a free education proposal that was drawn up outside of Treasury. This is despite the recently released Fees Commission report which states unambiguously South Africa cannot currently afford free education.

Sachs is widely admired for his commitment and technical proficiency. Ivor Chipkin, executive director of the Public Affairs Research Institute, described Sachs as someone of “extraordinary competence” with “a commitment to progressive projects”.

Chipkin makes it clear: “Michael’s resignation comes in the context of massive moves to undermine treasury.”

Gordhan offers background to the current impasse between Treasury and the Presidency. He says the Treasury has played a crucial role in building a democratic South Africa and how it acts to constrain government policy.

At the transition to democracy, South Africa was saddled with high levels of apartheid-era debt, Gordhan explained. In first post-transition years, government was able to wrest control of this debt through a series of tough measures.

Sensible economic management and a relatively stable political order, aided by a good commodity cycle, saw investment confidence grow.

The upward trajectory was aided by tax policy changes in the late 1990s and early 2000s, coupled with increased revenue efficiencies, which saw a new compliance culture emerge.

Fiscal consolidation had significant consequences for the state’s capacity to help its citizens. Public spending increased and social grants were extended to millions of people.

According to Gordhan, tough policy decisions combined with effective implementation, meant that the state could deliver a measurably better life to more people.

Reaching that point was an enormous achievement, explained Chipkin. Consolidating disparate financial administrations to bring the country’s finances under a central department, and imposing strict protocols for reporting and allocating finances, was “a major democratic achievement” that was “important in terms of state building”.

Whatever one’s view of the preceding decades’ fiscal policy, Chipkin added, building an effective national department was hugely admirable.

However, the 2008 global financial crisis posed a challenge in terms of balancing fiscal responsibility with funding social services. Despite a muted recovery in the aftermath of the crisis, South Africa’s growth has been poor.

“In that kind of environment,” Gordhan said, further measures needed to be taken to retain fiscal credibility, such as minimising increases to the deficit, focusing on growth and cutting expenditure in non-essential areas.

When he returned to the finance ministry at the end of 2015, it had become necessary to deepen budgetary cuts. Still, Gordhan stressed, cuts never ate into social grants or social services, as was the case with the austerity programmes practised in Europe.

In the context of relative austerity, Treasury increasingly finds itself acting as a restraint on government expenditure.

Ironically, analysts observe, political efforts to diminish Treasury’s independence and loosen constraints on expenditure, have further eroded the country’s growth prospect, which can only make belt-tightening even more important.

Gordhan pointed out that amid uncertainty accompanying “state capture” and a weakening of essential institutions, we have seen a dramatic decline in investor confidence, compounded by the accompanied downgrades by rating agencies.

In the run-up to the ANC’s December leadership conference, Gordhan said: “Clearly what you have are attempts to grab onto power.”

A similar pattern is evident in attempts to shift budgetary supremacy to the Department of Planning, Monitoring and Evaluation. Chipkin points out that although there may be a strong technical case for outcomes-based monitoring, “the performance process has been subverted by the president; the budgetary process is not clearly linked to the outcomes process.”

The upshot, Chipkin warns, is that the new budgetary process bypasses Treasury altogether.

“Michael’s resignation comes in the context of massive moves to undermine Treasury.”

In this context, we can better understand why the president’s radical-sounding proposals, such as free education for all, should not be taken at face value.

According to Gordhan, South Africa still faces enduring structural issues: land redistribution, inequality and economic inclusivity still need to be adequately addressed, and serious social issues require bold new policies.

But these need to be pursued responsibly. “The ANC has said clearly there must be free education for poor students,” Gordhan said, but this “must be achieved in a balanced way. If we are not going to grow, have a poor compliance climate developing and investor confidence is weakening, this is going to have clear fiscal implications.”

However, Gordhan remains hopeful. The ANC’s December conference marks a crossroads for South Africa. If the right leadership team arises, Gordhan insists, “within three months we can reverse the situation”.

To reverse the decline, Gordhan added, all sectors of society will have to work together. Now may be time not for despair, but for unity and action.