Ray Hartley is concerned about budget deficits under Zuma’s increased spending plan:

The ANC’s reaction to news that we are in recession – a pretty shocking one at that with GDP coming in at -6,4% – has been to say that spending on infrastructure and public works must be accelerated. Which is all good and well, except for one thing: The money will have to come from somewhere. It will either have to be financed, driving up government debt or it will have to come through increased taxation.

Neither of these options are desirable in the present climate. The government has until now avoided massive borrowing to fund spending for good reason. It screws up the balance sheet and takes resources away from development and into loan repayment. It has avoided raising taxes also for good reason. Increasing corporate and private taxes will only prolong the recession. So where is the money going to come from?

In the language of American politics, I am a “fiscal conservative”, ie. someone who believes in the apparently-controversial proposition that governments should not spend more money than they take in. So I instinctively sympathise with Ray’s concerns here. However, the specific way in which this point is phrased – that we’re in a recession, which means that there’s less money going around, which means that government should engage in belt-tightening just like everyone else in order to preserve its balance sheet – is just plain wrong. This is a recipe for prolonging and worsening the recession.

Furthermore, there’s nothing wrong with borrowing some money right now. Government budgets should be balanced, but they should be balanced over the course of the business cycle, not on a year-to-year basis. It is instructive to compare South Africa’s situation to that of the United States, as described by Jim Manzi:

The U.S. has been executing a stimulus plan by another name for a decade. In addition to Fed interest rate reductions in the middle of this decade, we are running a large budget deficit. We have consistently increased the national debt under Presidents Reagan, Bush 41 and Bush 43 (the national debt was reduced under President Clinton). [...]

According to the Congressional Budget Office (CBO), under current tax rates and locked-in spending plans, prior to any stimulus plan, the U.S. will add over $3 trillion to the national debt. Over the course of the next several decades, the national debt would balloon to levels as high as hundreds of percent of GDP. Barring some unexpected and miraculous increase in productivity, this isn’t going to happen. Taxes are going up and/or the economic benefits provided by these programs are going down.

In other words, the US has unfortunately destroyed its fiscal position by running up deficits during growth years, which has reduced its freedom to maneuver in the current recession. (Obama has only been able to “stimulate” the US economy by running up huge, irresponsible new debts on the back of old ones.) By contrast, South Africa has mostly paid off its government debt and has been generating budget surpluses for several years now, which means that the government can engage in some responsible deficit-spending. Put another way, over the last few years we have been “saving up for a rainy day”, and now would be a good time to spend that money.

However, that doesn’t mean that the administration’s economic instincts are all sound. Zuma’s leftist allies have spent the last eight years criticising Trevor Manuel’s “conservative” policy of paying down the debt and curbing government spending. Now, having inherited the reigns of policy in the midst of a recession, they intend to carry out a Keynesian reinflation of the economy – using the savings that Manuel left behind! Perhaps now we can all finally acknowledge that Manuel was right; that maintaining a healthy fiscus is a important; and that when all of this is finally over and the economy is in recovery, it would be a good idea to return to Manuel’s sensible policy of balancing the budget.