It’s a dozen years since Tom Friedman’s bestseller, The World Is Flat, floated the idea of a golden straitjacket. His theory is that because of globalisation, financial markets would force politicians to apply responsible economic policies. All went according to plan until the 2008 meltdown required massive reflation. As a result, fiscal discipline was a major casualty.
But with the world economy now normalising, those restraints are once more being tightened. Something particularly relevant for South Africa with next week’s mini-budget looming. On Wednesday, citizens will hear that the national budget is off the rails. While Treasury’s annual spending is ahead of target, tax receipts are a hefty R40bn below what was expected – more than doubling the projected 3.4% budget deficit.
That is bad news indeed. As any household knows, there are only two ways to balance books which look like this. One is to cut spending, but that’s a foreign concept for the Zuma Administration. The other alternative is to raise taxes. With the golden straitjacket taking its shape again, brace yourself for some bad news.
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