Yesterday GTAC hosted the first Public Economics Conference under the theme “Employment and economics of job creation: evaluating government employment programmes.”
Ronette Engela, Acting Head of GTAC, welcomed delegates and set the scene for the day, outlining highlights from the programme. In her opening said: “This is an event where we have the unique opportunity to join hands across private sector, the civil service and the Academia. In government, particularly in the National Treasury family, we have the opportunity to contribute to policy making and programme development aimed at reducing inequality and advancing social justice. We are not afraid to push boundaries, break new ground, and to stand fearlessly in the face of adversary. I want to thank each one of you for joining us on this journey towards a more equitable and just society. Your presence and contributions are invaluable, and together, we can make a significant impact.”
The programme was officially opened by Minister of Finance Enoch Godongwana, he said: “This conference allows us to shine a sorely needed spotlight on unemployment. Unemployment is the weight of dreams deferred, it ripples through communities, eroding hope. As we approach the 30th year of democracy, the project of universal freedom remains incomplete while the majority of South Africans remain unemployed. This is a crisis requiring urgent action not just from the state but the private sector, trade unions and civil society. I welcome your insights to this critical and urgent task that we as a government have committed ourselves to. This conference will draw on insights from GTACs research and harness the spirit of collaboration to find solutions.”
The Conference started with overview of SA’s fiscal policy challenges, and the spending choices required to narrow the very wide gap between government’s fiscal programme and its policy agenda.
Michael Sachs, Southern Centre for Inequality Studies (SCIS), University of the Witwatersrand presented during this session and he highlighted the tension between governments fiscal policy which focuses on stabilising the fiscus by reducing government employee compensation and the need to provide services.
He said: “We cannot defund government services, if we do defund things like basic education, healthcare, the police service, it will undermine the future of society. We are forced to continue funding these things but we have had intense pressure on the compensation of these budgets.”
He highlighted that a reduction in headcounts is diminishing the number of people employed versus number of people they serve, “We are withdrawing our service provision to the population. Our policy says that we have insufficient number of nurses and doctors and we need to increase those numbers going forward. We need an expansion of headcounts and service but the budget is mandating a reduction of headcounts.”
He highlighted that we need to stabilise the fiscus and that this can be done a strategic and well managed way that asks where can cut and reduce expenditure or we can leave it to the system and if we do that the result will be a further reduction of services, as those without power and voice will be the victims of this reduction in services.
You can read his paper “Austerity Without Consolidation: Fiscal policy and spending choices in Budget 2023” here.
He concluded by saying: “It may be necessary to contain expenditure and cut budgets but we must know that this has implications for inequality. The lower middle class, who are government employees will feel the impact and the users of government services – these are poor South Africans – will be impacted. We must align government’s policy agenda with its fiscal agenda.”
This was followed by a panel discussion on the topic that included panelists Michael Sachs, Rashaad Amra from the Southern Centre for Inequality Studies (SCIS) at the University of the Witwatersrand, Debra Makwiramiti and Khetha Dlamini from the Budget Office at National Treasury.
This panel unpacked policy priorities and budget choices for ensuring social and economic sustainability. This session tackled important questions around programme design in the public sector, and how to implement institutional reforms that ease rather than exacerbate fiscal constraints.
“The fiscal challenges we face are not caused by fiscal choices but result from low growth. Since 2012 we have had stagnating per capita income. In those conditions you are bound to get these fiscal challenges emerging. It’s not so much that expenditure has been out of control, the problem is that the broader growth of the economy is insufficient to support the budget,” said Michael Sachs.
Debra Makwiramiti, Budget Office at National Treasury, said: “We need structural reforms but this alone doesn’t solve the current challenges. Fiscal policy works to stabilise public finance to create fiscal space to respond to economic shocks when they occur. What is key is to encourage investment and promote structural reforms. The challenges that we are facing, requires a multistakeholder approach.”
Rashaad Amra, Southern Centre for Inequality Studies (SCIS) at the University of the Witwatersrand added: “Policy choices need to be choices, not us fumbling along because of structural challenges from the wage bill.”
Prof Steven Friedman from the University of Johannesburg presentation was titled “The political economy of spending choices: institutional perspectives in the context of inequality and unemployment”.
He outlined that this notion of the jobs debate is outdated and that we should be looking at livelihoods. He said: “We need to think differently, we need to stop thinking about jobs and start thinking about livelihoods. This will influence our spending priorities. The argument that informal economic employment is important has been around in this country for a long time. What I am suggesting is that we need simply to recognise that this is a reality that we need a policy response for. That policy response should be rooted in the reality of how people live, it should be a mixture of deregulation measures and interventionist measures. But on its own it won’t be enough to resolve their livelihood challenges, it needs to hook people up to the formal economy in some way. Need to get beyond the jobs debate and get into the livelihoods debate – otherwise these conversations will be deeply detached from the reality.”
Andreas Wörgötter, Visiting Research Fellow, University of Technology, Vienna and South African Reserve Bank presented on the key drivers of low labour utilisation and the impact of South Africa’s labour policies, you can read his paper here. He looked at the data, comparing South Africa to others in the OECD and possible lessons. He said: “South Africa is an outlier; no other country shows such a low contribution from labour to economic activity. South Africa has organised its economy differently from other emerging markets. SA has highest share of people not working, this contributes to it lagging behind in living standards and the high rate of inequality.”
He pointed to the following key drivers of inactivity including the dysfunctional transition from school to jobs. Regional and gender gaps are high, transport costs are exorbitant and the availability of housing close to jobs isn’t good or affordable for these job seekers, keeping them economically inactive due to where they are living.
He finished by saying that “low growth and inactivity are two sides of one coin. Average growth could be 2% higher if labour utilisation could rise to level of Türkiye. Participation in economic activity is the most efficient way out of poverty.” You can view his presentation here.
This was followed by a panel discussion including Mthokozisi Tshuma, Policy Specialist, United Nations Development Programme. He said: “Our structure of the economy, is mainly driven by the service sector which requires a skilled labour force, this poses a risk to the unskilled labour force. So this poses a challenge, taking into account our low growth trajectory. How do we create jobs and respond to youth unemployment? Some of the proposals from the speakers around improving education outcomes, we need to align the vocational education system to the skills to address the mismatch between labour demand and supply. Promote inclusive growth, through SMMEs and township economies. There is a trust deficit between government, private sector and labour. We need more social compacting to enable the country to respond to these challenges.”
Thoko Madonko from the Southern Centre for Inequality Studies (SCIS) at University of the Witwatersrand, closed her contribution by asking “What kind of a state do we want to see? If we want to address climate change, inequality and gender inequality we should be looking at investing in social infrastructure, we should be investing in jobs that care for people and the economy.”
After lunch there was a session that looked at South Africa’s energy sector and climate policy and the impact of the integration of renewables into the South Africa electricity system.
Bernard Bekker, from the Centre for Renewable & Sustainable Energy Studies, University of Stellenbosch presented on “Integration of renewable sources into the South African electricity system: opportunities and risks”.
He started by emphasising that within the context of loadshedding, policy makers see renewables as the main solution. He shared the country’s planned approach to rolling out renewables and storage capacity and then shared the actual installation. His analysis revealed that the amount of ‘behind-the-meter’ solar PV installation by individuals and business boomed while only a fraction of what was planned was built. He asked the question if this will solve loadshedding? He outlined the risks of this situation, including a risk of revenue being eroded, constrained transmission and the constrained flexibility.
He investigated the Financial viability for municipalities and the delicate balancing act required between the reduction in revenue but also the reduction in costs, bulk power purchases, reduction in technical losses and cheaper electricity to on-sell resulting in a bigger profit margin.
He concluded by saying: “Pricing must be fair and responsive to this fast changing scenario and we need an updated IRP to enable proper planning.”
Jesse Burton from the Department of Chemical Engineering, University of Cape Town presented on the “Implications of fossil fuel economics & climate policy on SA’s energy system & economy”. She set the scene by highlighting that the world is not on track to achieve the 1,5 degree target but that technology costs have come down dramatically.
“It’s now cheaper to use new, renewable technologies like power generation and transport but many interventions do come with higher costs with higher technology, R&D and innovation costs.”
She also highlighted that South Africa is an outlier in terms of its dependence on coal. We get 86% of energy from coal, this is a lot of concentrated risk around one fossil fuel. “If we keep limiting new renewables we have high job losses in the broader economy. Protecting coal comes at a cost to other sectors. So building new coal is not an effective use of scarce funding.”
The panel session that followed was facilitated by Neil Cole from the Just Energy Transition Partnership (JETP) with presenters discussing how to unlock investment in grid infrastructure, accelerate investment in renewable energy, how to use incentives and measures for non-compliance, and managing risks and how to go about managing employment and the social impacts of the energy transition.
Shameela Soobramoney, National Business Initiative says: “What attracts investment is always the same – policy and enabling mechanisms. There is a sense that we are a little bit schizophrenic, we need coherence on the national strategy. This must be followed by the support that is required. How is this rolled out to different levels? Do we have capacity at the relevant tiers of government to implement those strategies? We need to create an enabling environment and what are the immediate models we can adopt to create that?”
Vukile Davidson, Tax and Financial Sector Policy, National Treasury focused on the National Treasury approach. He said: “We need new models to marry private sector and public sector and how we share risks. We need a shift in paradigm – electricity provides power for economic activity but increasingly in a connected world, it will increasingly matter how they generate their goods and services.”
Jesse added that “South Africa is a leader in terms of community benefit sharing. We have tried to bring in the developmental aspects. Its about livelihoods, education, food security, its about building stuff. It can’t just happen from projects, need programmatic interventions and that needs government to deliver more with less.”
The final session of the day shed light on the revenue side. Andrew Donaldson from the Southern Africa Labour and Development Research Unit (SALDRU) at the University of Cape Town looked at what has happened to the personal income base over the past decade. You can view his presentation here for a detailed analysis of the shifts in income base.
He highlighted that there has been small increases in the number of tax payers due to the contraction of the economy since 2020 but interestingly personal income tax grew at a faster rate than GDP.
He said: “Tax policy has shifted to higher rates of tax over the last period. There is an upwards growth in higher income brackets, also an upward shift towards older individuals. There is a slight reversal in inequality but we remain a highly unequal society.”
This was followed by a presentation from Vimal Ranchod, Southern Africa Labour and Development Research Unit (SALDRU), University of Cape Town. His presentation titled “Employment tax incentives: evidence on its impact” interrogated employment incentives, especially youth employment incentives.
His research revealed that there has been “No impact on the employability probability as a result of the ETI, there is no significant effect of the ETI on labour probabilities for individuals but that there is a slightly larger impact at a firm level. So does it work? If looking at aggregate youth unemployment then probably not, youth unemployment has increased over the last decade.”
The panel then debated Income tax, employment and social security – reform options looking at whether there is scope for raising the tax burden, the tax implications of social security reform and NHI and reflecting on active labour market policies, alternative instruments.
Josh Budlender, Southern Africa Labour and Development Research Unit (SALDRU), University of Cape Town said: “Has the ETI worked? At face value its mixed, which is irritating for policy makers. No we don’t see any effects in addressing the level. But what we can say is that those firm level study’s don’t work. Non ETI firms are limited by the study methods, they don’t work in assessing the effects.”