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Daily Maverick
27-05-2025
- Business
- Daily Maverick
Now more than ever South Africa needs to practise fiscal prudence
To paraphrase Ronald Reagan, 'this time is different' are the four most dangerous words in economics. And yet, in a recent op-ed for Business Day, Ziyanda Stuurman invokes precisely this logic. She argues that while 'budget cuts have become conventional wisdom in South Africa in the past decade… we are no longer living in conventional times.' Surely however, it is exactly during turbulent and unpredictable economic conditions such as those we are living through that — particularly for emerging markets like South Africa — fiscal discipline becomes more critical, not less? Stuurman makes an impassioned plea to the National Treasury to break from economic orthodoxy and embrace the principles of Modern Monetary Theory (MMT) — essentially, spend freely in the hope that growth and welfare dividends will follow. However, her central claim — that countries across Africa like Kenya are successfully applying this approach — is not only misleading, but is also just wrong. Across the continent, governments are conversely tightening their belts in response to severe economic pressure. In the past week alone, Kenya, Mozambique and Botswana have all announced plans to reduce spending. Ghana made similar announcements in March. The reason for these draconian cuts to expenditures is the darkening economic outlook. Kenya, for example, has announced austerity programmes to drastically shrink its budget deficit by June 2026 as it negotiates a new bailout programme with the International Monetary Fund. The government intends to make 'substantial revisions' to its previously expansionary budget of 4.3-trillion shillings ($33-billion), in an effort to drastically cut its deficit. Clouding it all is a gloomy growth outlook, with the economy expanding in 2024 by 4.7%, its slowest since the pandemic. 'The cabinet has resolved to implement significant budget realignments in line with the government's policy of fiscal consolidation and commitment to living within its means,' read a statement from the Kenyan presidency. Post-election unrest In Mozambique, post-election unrest and a slump in the price of coal, the nation's biggest export, have led to job losses and a financing crunch. The government slashed its 2025 budget by 9%, approving a 512.75-billion meticais ($8bn) spending plan, down from 567.86-billion in 2024. Yet, the budget deficit is still expected to reach 8.2% of GDP. With debt servicing and a ballooning state wage bill consuming state resources, Mozambique faces mounting fiscal strain amid political instability and falling growth projections. The worst election-related protests the country has yet seen — after opposition presidential candidate Venâncio Mondlane disputed the October election outcome that placed him second — have also hit growth and revenues, exacerbating the situation. Meanwhile Botswana — the world's leading diamond exporter by value — is suffering from a prolonged drop in global demand for the gems. It previously relied on precious stones for most of its exports and about a third of its fiscal revenue. Collapsing diamond demand has led to dwindling government revenue streams and reserves, with its budget deficit projected to widen to 9% of GDP. The country is also forecasting a 3% economic contraction this year. Compounding Africa's challenges is a shifting global environment. The abrupt end of billions in dollars in aid and a major reordering of global trade under US President Donald Trump are already having ripple effects. Reduced demand for key commodities and diminished preferential access to the US market will worsen the economic downturn for many of Africa's poorest countries, precisely when they need it least. It is with this backdrop that South Africa's Finance Minister Enoch Godongwana last week calmed a months-long political crisis that had threatened the stability of its governing coalition, presenting a fiscally cautious Budget that won praise from lawmakers and investors alike. In his third stab at getting the Budget signed off by Parliament, Godongwana announced cuts to spending, lowered growth forecasts, and acknowledged a slightly higher debt peak than before. Markets cheered the Budget. Despite the fraught meeting between presidents Cyril Ramaphosa and Donald Trump in the White House that happened to be on the same day, the rand surged toward its sixth consecutive weekly advance, hitting a five-month high against the dollar on Friday. It is now trading at well under R18 to the greenback, which has seen general weakness against major currencies. South African bonds have also barely moved this year, shrugging off the volatility incurred by the debates over the Budget. The 10-year yield is under 10.5%, its lowest since February (bond yields move inversely to prices). Instead of using this moment to supposedly question economic orthodoxy, we should commend the National Treasury and coalition government for their firm stance on either raising taxes or cutting expenditure. As previously argued in this column, any worsening of the outlook for the US economy will have major repercussions on emerging markets such as South Africa. Aid cuts and higher tariffs will hurt, regardless of whatever kind of slightly improved deal may be forthcoming from the meetings in the White House. The National Treasury and indeed the South African Reserve Bank are right that this is a time for maximum prudence and caution. Sadly, beset with State Capture and energy crises, South Africa did not make the most of the amenable conditions for emerging markets over the past few years. Yet, that is not an argument to jettison the sensible economic policy that has been the one thing keeping South Africa from going the way of Venezuela and Zimbabwe over the past few decades.
Yahoo
12-05-2025
- Business
- Yahoo
Sanders adviser Stephanie Kelton praises Trump's tax hike suggestion
As President Donald Trump flirts with breaching Republican orthodoxy by letting tax cuts expire for some higher earners, he's found support from the lead economic adviser to Sen. Bernie Sanders' 2016 presidential campaign. Stephanie Kelton, an economist at Stony Brook University who drew affection and derision for arguing that policymakers should ignore the federal deficit, said in an interview with Semafor that Trump is targeting the right group for a tax bracket of 39.6% if he wants to avoid inflation. Trump's proposals to cut taxes on Social Security, tips and overtime are 'likely to be stimulative,' she said. 'You have to think seriously about the potential for inflation.' Kelton, who is also a fellow at the Vermont senator's Sanders Institute, said Trump's flotation of keeping current, higher marginal tax rates for new tax brackets for people making $1 million to $2.5 million 'is directionally correct.' 'It's the right idea for mitigating the inflation risk,' she said. Kelton came to prominence as the leading avatar of Modern Monetary Theory, which dismisses the idea that governments should let worries about the deficit get in the way of spending programs. The theory peaked in popularity as governments around the world massively boosted spending during the COVID-19 pandemic with no immediate ill effects. Now, Kelton and her allies are sometimes blamed for the dovish attitude toward inflation that played a major role in unraveling former President Joe Biden's prospects. Kelton cites a 2021 New York Times opinion article she wrote warning of inflation and arguing that taxing corporations and the super-rich wouldn't slow the spending that drives it. The target for tax hikes, she argues, must be the merely rich, the people Trump's plan would sweep in. The top 10% of Americans account for about half of all consumer spending. That tier of wealthy Americans who aren't in the billionaire class will temper their consumption based on their annual income, Kelton said, arguing that keeping their taxes high could help keep inflation in check. Trump's tepid call for higher taxes on the rich follows the logic of his MAGA movement and the notion of a working-class Republican Party. The president wrote Friday that it would be 'a 'TINY' tax increase for the RICH, which I and all others would graciously accept in order to help the lower and middle income workers.' But he added that Republicans probably shouldn't do it, lest they be accused of breaking a promise not to raise taxes. And letting tax rates rise remains anathema to a party shaped by an earlier era of Republicanism. Former Trump adviser Steve Bannon, now a MAGA movement leader with his show , said in a text message that the dynamic 'shows you [how] much we changed the electorate and how little we've changed the party.' The support from Kelton also offers a glimpse of an alternate path for Trump and his movement: a potential alliance with Democrats on matters of economic policy, where they may have more in common with one another than with the party of the president. Former House Speaker Newt Gingrich has lobbied hard against any Republican shift toward supporting higher taxes: 'Given the current mood of Democrats, the bill will have to be passed with Republican votes. Poison pill tax increases will only lead Republican in-fighting – which the media and Democrats would love to watch – and the bill's potential failure. Republicans in the House, Senate, and White House should commit themselves to passing the 'big, beautiful bill' with no new taxes,' he wrote. Trump signaled to senators in April that he'd be open to keeping some taxes high, Semafor's Burgess Everett first reported. Kelton in 2019, as 'the economist who believes that the government should just print more money.'
