The high cost of austerity
Late last year, Sveriges Riksbank, Sweden’s central bank, published a journal article titled The Political Costs of Austerity as part of its Working Paper series.
The paper, which has appeared elsewhere, relied on a regional database covering over 200 elections in several European countries to trace the relationship between the rise in support for extreme parties during periods of fiscal consolidation. The paper’s writers define extreme parties as both far left or far right but found that the latter saw a more significant rise in voter support in the wake of austerity.
A reduction in regional public spending by 1%, they found, causes a rise in extreme parties’ vote share of around 3 percentage points. Moreover, political fragmentation increased and there was lower voter turnout. This is as austerity inflicts severe economic pain — private investment and wages fall, entrenching economic contraction, and unemployment rises.
South Africa is approaching an important election, which some say will be a watershed moment for the ANC. The governing party has imposed cycles of austerity on South Africa’s economy throughout its time in power. Now, the government is seeking to implement another round of spending cuts, just as the ANC faces down perhaps the biggest threat to its leadership — a languishing economy.
As a number of commentators have already pointed out, by tightening the public purse strings now, the ANC-led government could be committing political suicide.
At the very least, it could spell the end of President Cyril Ramaphosa’s leadership and the beginning of the end of his push for unity and renewal within the governing party. Whatever remains of the party in the fallout could be even more to the right than what we currently have to endure, though its actors will undoubtedly disguise themselves as falling on the side of the left.
For those on the outside of the ANC’s gravitational pull, there are opportunities, as well as considerable pain, in the governing party having wielded only double-edged swords (which it has brandished in only the most clumsy of ways).
In a statement last week, the Budget Justice Coalition warned of the detrimental effects of the looming spending cuts.
This is after it came to light that the treasury has instructed government departments to pare back their budgets in the lead-up to the tabling of the medium-term budget policy statement (MTBPS), now expected to happen in November.
The MTBPS and the February 2024 budget have long been viewed by analysts as especially tricky for the ANC, as the party attempts to balance the interests of the voting public and the markets, which have their own brutal voting system. The country’s meagre growth this year, as well as the fading of the commodity boom, has made budgeting even more treacherous.
The directive states that — given the lower growth projections than those contained in the February budget and the deteriorated fiscal outlook — the treasury has been left with little option but to propose stringent budget adjustments. In the meantime, the treasury has told government departments to freeze hiring, as well as the process of advertising new procurement for infrastructure projects, unless approved by the treasury.
“These measures,” the directive notes, “can be relaxed as soon as economic and fiscal conditions improve.”
The Budget Justice Coalition states that these sudden and immediate measures “only serve to widen the gap between those who are hungry and live well below the food poverty line and those who are wealthy”.
“We caution that these budget cuts will have long-term detrimental effects on the economy and the progressive realisation of socio-economic rights protected by the South African Constitution. Moreover, the measures will further impede the state’s ability to increase much-needed capacity in key areas, such as crime prevention, health, education, social development and early childhood services.”
Cosatu, the ANC’s alliance partner, also hit out at the spending cuts.
“Whilst we appreciate the real fiscal constraints facing the state and the need to cut fat and reprioritise expenditure,” the trade union federation said, “the solutions offered by treasury of slashing expenditure and further de-capacitating the state when the economy is in desperate need of stimulus and a well-oiled and capacitated public services, will only serve to choke the economy and further weaken an already enfeebled government.
Notably, the Budget Justice Coalition calls on the treasury to acknowledge austerity’s true costs and how these have been weighed against alternative options for raising additional revenue, such as increasing taxes on wealth and adjustments to corporate income tax.
As the treasury prepares for the MTBPS, the coalition notes, it has an opportunity to consider alternatives to austerity. “Furthermore, the upcoming 2024 elections should serve as a strong reminder that the public requires a government that works for, and not against, the realisation of constitutional rights — and one that stimulates the economy.”
The sad truth is that a protracted period of fiscal consolidation has already been the impetus for internal political fragmentation, a fact which has allowed those in power, as well as some of those charged with holding them to account, to lose sight of their constitutional duties. In the wake of the state’s moral deterioration, opportunists have managed to accelerate its collapse, using this predicament to grow their bellies — creating the perceived need for further budget tightening.
All the while, everyone has become a scapegoat for the country’s economic ills: civil society, labour, the poor, immigrants.
The Political Costs of Austerity imparts two lessons worth heeding. To ruling parties, in choosing to inflict fiscal consolidation, you are gambling with your own political relevance. Even if you manage not to be booted from power, the scar of political disharmony will probably never fade.
To those doing the thankless work of guarding us against the bludgeoning by unscrupulous politicians — the natural opposition to the far right — when ruling parties fall to pieces, you do not have the luxury of doing the same. For what we need now is a coherent and concerted movement against the forces that endeavour to deepen the inequalities that have kept us divided for so long.