tag:theconversation.com,2011:/au/topics/expenditure-22184/articlesExpenditure – The Conversation2022-02-23T15:34:38Ztag:theconversation.com,2011:article/1767922022-02-23T15:34:38Z2022-02-23T15:34:38ZShow me the money: Employees not only want better pay, they want status<figure><img src="https://images.theconversation.com/files/447034/original/file-20220217-17-gnekqx.jpg?ixlib=rb-1.1.0&rect=0%2C550%2C4091%2C2480&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Over 50 per cent of working Americans continue to be dissatisfied with their 'unjust' incomes. They say it isn't sufficient to meet their family expenses.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><iframe style="width: 100%; height: 175px; border: none; position: relative; z-index: 1;" allowtransparency="" src="https://narrations.ad-auris.com/widget/the-conversation-canada/show-me-the-money--employees-not-only-want-better-pay--they-want-status" width="100%" height="400"></iframe>
<p>There has been endless chatter about the Great [<em>insert pandemic-related work trend here</em>].</p>
<p><a href="https://www.theatlantic.com/ideas/archive/2021/10/great-resignation-accelerating/620382/">Resignation</a>. <a href="https://www.npr.org/sections/money/2022/01/25/1075115539/the-great-resignation-more-like-the-great-renegotiation">Renegotiation</a>. <a href="https://www.cnbc.com/2022/02/04/companies-are-reinventing-rules-as-employees-seek-remote-work-and-flexible-hours.html">Reshuffle</a>. </p>
<p>Regardless of the descriptor used, employees in the United States are purportedly <a href="https://www.nytimes.com/2022/01/04/business/economy/job-openings-coronavirus.html">re-evaluating</a> the role of work in their lives. While some of this is related to deeper <a href="https://www.npr.org/sections/money/2021/10/19/1047032996/why-are-so-many-americans-quitting-their-jobs">existential questions</a> — like “What am I doing with my life?” or “Is this really how I want to be spending most of my waking hours?” — there might be a much simpler and more practical explanation for the <a href="https://time.com/6051955/work-after-covid-19/">take-this-job-and-reinvent-it</a> wave.</p>
<p>A classic quote from the 1996 film <em>Jerry Maguire</em> captures it well. Sports agent Jerry Maguire (played by Tom Cruise) has been fired and as he embarks to become an independent agent he desperately tries to retain one of his clients, football star Rod Tidwell (Cuba Gooding Jr.). </p>
<p>Tidwell shouts his demands: “<a href="https://www.youtube.com/watch?v=FFrag8ll85w">Show me the money!</a>” He adds: “I have a family to support, Jerry!”</p>
<h2>Earning enough to make ends meet</h2>
<p>Given what Americans say about their earnings, you’d think many would be bellowing like Tidwell. From Jan. 19 to Feb. 2, 2022, my research assistant and I partnered with Angus Reid Global to field a national survey of 2,000 working Americans. We asked: <em>Do you feel that the income from your job alone is enough to meet your family’s usual monthly expenses and bills?</em> </p>
<p>An astonishing 54.8 percent said “no.” </p>
<figure class="align-right ">
<img alt="A list of household expenses and income is placed on top of a bill with a calculator beside it" src="https://images.theconversation.com/files/447393/original/file-20220219-67390-5bhg5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/447393/original/file-20220219-67390-5bhg5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=374&fit=crop&dpr=1 600w, https://images.theconversation.com/files/447393/original/file-20220219-67390-5bhg5t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=374&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/447393/original/file-20220219-67390-5bhg5t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=374&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/447393/original/file-20220219-67390-5bhg5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=470&fit=crop&dpr=1 754w, https://images.theconversation.com/files/447393/original/file-20220219-67390-5bhg5t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=470&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/447393/original/file-20220219-67390-5bhg5t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=470&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Over the past two decades, more than half of surveyed American workers weren’t able to make ends meet with their job earnings alone.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>Considering the ominous news <a href="https://www.nytimes.com/2022/01/24/learning/lesson-plans/lesson-of-the-day-inflation-has-arrived-heres-what-you-need-to-know.html">about inflation</a> lately, we figured that this unfavourable perception has spiked from previous years. But looking back through two decades of U.S. data from the <a href="https://gssdataexplorer.norc.org/variables/2817/vshow">General Social Survey (GSS)</a> — a highly reputable national survey of Americans — we were surprised by how prevalent and stable the “no” responses have been. </p>
<p>In 2018, the last time the GSS asked this question, 50.8 percent of American workers reported that the income from their job was not enough to make ends meet. And the percentage was even higher in previous years: 52.9 in 2014; 53.4 in 2006 and 55.9 in 2002. The highest on record — 58.2 per cent — occurred in 2010 at the tail end of the Great Recession.</p>
<h2>How fair is what you earn?</h2>
<p>But “show me the money” isn’t only about having enough for life’s necessities. It’s also about the sense of fairness — what scholars refer to as <a href="https://doi.org/10.1146/annurev.so.09.080183.001245">distributive justice</a>. In our survey, we asked: <em>How fair is what you earn on your job in comparison to others doing the same type of work you do?</em></p>
<p>While 37.9 per cent feel they are paid appropriately, 52.7 per cent feel they are paid less than they deserve. On this indicator, the shift is substantial. <a href="https://gssdataexplorer.norc.org/variables/2816/vshow">Between 2002 and 2018</a>, 40.6 per cent on average have described their pay as being somewhat less or much less than they deserve, with 2010 again being the outlier at 46.2 percent.</p>
<p>We need to earn enough to live, and the amount should be just. But there’s another element of pay that reflects something deeper. <a href="https://doi.org/10.1037/a0038781">A fundamental human motive: status</a>. Justifying his “show me the money” plea, Tidwell roars: “I’m a role model, Jerry,” adding “it’s a very personal … very important thing.” </p>
<figure class="align-center ">
<img alt="A graphical representation of people standing on piles of differing amount of money." src="https://images.theconversation.com/files/447392/original/file-20220219-42890-13sd2ql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/447392/original/file-20220219-42890-13sd2ql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/447392/original/file-20220219-42890-13sd2ql.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/447392/original/file-20220219-42890-13sd2ql.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/447392/original/file-20220219-42890-13sd2ql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/447392/original/file-20220219-42890-13sd2ql.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/447392/original/file-20220219-42890-13sd2ql.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Income, which can often be distributed unfairly, determines social status.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
</figcaption>
</figure>
<p>Status matters. Not only in the eyes of others, but in our own self-evaluations too. Sociologists refer to this as <a href="http://sparqtools.org/mobility-measure/macarthur-scale-of-subjective-social-status-adult-version/">subjective social status</a>. To measure it, we told respondents to think of a ladder. At the top (10) are the people who are the best off. At the bottom (1) are the people who are the worst off. And, we asked: <em>Where would you put yourself at the present time?</em></p>
<p>On average, American workers report a 6 on the status ladder. But those who report insufficient earnings and feel severely underpaid score significantly lower (4.9), compared to those who have sufficient earnings and feel their pay is appropriate (6.6). That difference holds regardless of education, occupation, income and job authority. </p>
<h2>Can money buy happiness?</h2>
<p>Some say <a href="https://www.pnas.org/content/107/38/16489">money can’t buy happiness</a>, but it goes a long way to providing status. And status often <a href="https://doi.org/10.1016/j.copsyc.2019.07.014">translates into happiness</a>. </p>
<p>In our survey, Americans who don’t earn enough to make ends meet and feel underpaid are less happy and hopeful about the future. Life, for them, is less enjoyable. Inadequate earnings and feeling underpaid also erode happiness more strongly than the objective indicators of low socio-economic standing do. And one’s position on the status ladder eclipses all other socio-economic indicators in predicting happiness.</p>
<p>Our sample doesn’t include any professional football stars. But it does contain a broad cross-section of American workers — doggie daycare assistants, accountants, truck drivers, software engineers, sous chefs, electricians, candle-makers and on and on. All have a few things in common: They want to earn enough money to make ends meet, they want to be paid fairly for the work they do and they all share the fundamental human motive for status.</p>
<p>As dated as <em>Jerry Maguire</em> feels, “show me the money” still resonates. Maybe it always will. Given how consistent these indicators of income dissatisfaction have been for the past few decades, perhaps the Great Re-evaluation of work should focus first and foremost on compensation. Channel your inner Rod Tidwell!</p>
<p><em>Xin Ming Matthew Zhou, an undergraduate research assistant in the Department of Sociology at the University of Toronto, co-authored this article</em></p><img src="https://counter.theconversation.com/content/176792/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Scott Schieman receives funding from Social Science and Humanities Research Council. </span></em></p>Many Americans regularly report that they don’t make enough to support their families. Status plays a role — while money can’t buy happiness, it can bring status, which can lead to happiness.Scott Schieman, Professor of Sociology and Canada Research Chair, University of TorontoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/863672017-10-26T17:46:48Z2017-10-26T17:46:48ZSouth Africa’s finance minister fails to come up with the goods<figure><img src="https://images.theconversation.com/files/192112/original/file-20171026-13378-1284fyq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">EPA/Stringer</span></span></figcaption></figure><p><em>Given the gloomy political and economic environment in South Africa a great deal was expected from Finance Minister Malusi Gigaba’s first <a href="http://www.treasury.gov.za/documents/MTBPS/2017/">budgetary statement</a>. The Conversation’s Sibonelo Radebe asked Owen Skae to rate the medium term budget statement</em></p>
<p><strong>What are your general impressions of the speech?</strong></p>
<p>The minister’s opening remarks were encouraging but in the final analysis, nothing profound came out of his speech. </p>
<p>The reference to a famous line Ben Okri’s poem was inspiring: </p>
<blockquote>
<p>You can’t remake the world without remaking yourself. </p>
</blockquote>
<p>By quoting the line the minister gave the impression that he and his team have been through a thorough introspection which is sorely needed given the <a href="https://theconversation.com/britains-labour-party-and-south-africas-anc-why-the-stark-contrast-of-fortunes-85000">state and direction</a> of the ruling African National Congress (ANC) and the country. Corruption is steadily and surely eating away the future of South Africa.</p>
<p>Some say the minister did do some <a href="https://theconversation.com/gigaba-lays-bare-south-africas-economic-woes-will-it-be-enough-to-trigger-change-86374">introspection</a>. But his speech was vague and lacked the critical elements of taking responsibility and offering solutions. He offered little detail about how the country will get on the path to the kind of sustainable economic growth it so sorely needs.</p>
<p><strong>What are the biggest challenges facing the country coming out of the speech?</strong></p>
<p>South Africa’s problems are well known. Economic exclusion and unemployment tops the list. They can only be solved by significantly growing the economy. But I couldn’t find any detail about how the country is going to address these critical areas.</p>
<p>Growth prospects remain gloomy as captured in the minister’s own words. He revised 2017 economic growth downwards from 1.3% to 0.7%. And his projection shows growth remaining below the 2% mark over the next three years. This is far below the required growth of about 6% for the country to push back poverty and unemployment.</p>
<p>Poor economic performance is obviously symptomatic of deeper issues. But he didn’t tackle them. For example, there was a lack of urgency to deal with allegations of state capture, which has involved attempts by powerful individuals and groups to shape South Africa’s political and economic landscape through corrupt relationships and deals to benefit their own private interests. He also resurfaced the nuclear power deal. This will just make the rating agencies nervous.</p>
<p>His rhetoric around state owned enterprises is not convincing. We’ve heard it before. I’m afraid the old mantra ‘seeing is believing’ will guide many when it comes to his promise of fixing these troubled enterprises.</p>
<p>The minister did speak of a Youth Employment Service and a R1.5 billion small to medium enterprise development fund. But frankly speaking this doesn’t even begin to touch sides of what needs to be done. </p>
<p>He also faces the dual problem of declining revenue and increasing expenditure. This medium term budget projected a R50.8 billion tax revenue shortfall for the 2017/18 period which was described as “the largest downward revision since the 2009 recession”.</p>
<p>And he’s already dipped into the contingency reserves to recapitalise troubled state owned enterprises, South African Airways and the South African Post Office. And he faces an ever increasing demands for social expenditure.</p>
<p>So, there is talk of the disposal of assets. But why partially sell the crown jewels of Telkom and leave the problematic entities like power utility Eskom and South African Airways to further burden the taxpayer. That just fuels the view of cynics who believe government isn’t really committed to making the tough decisions the minister alluded to.</p>
<p><strong>What do you think of the handling of educational funding matters?</strong> </p>
<p>I was half expecting the minister to announce something significant around the funding of education given the developments of the past few years. But he said almost nothing that will change the destructive course that the country’s education system finds itself in.</p>
<p>There was the routine statement about how allocation to the education sector is “the fastest growing element of expenditure over the medium term”. The allocation moves from R77 billion this year to R97 billion for the 2020/21 financial year. This increase looks significant but it doesn’t even begin to address the problems at hand – in particular the funding of higher education against a mass of students who can’t afford to pay their fees. </p>
<p>The problem has escalated because of a <a href="https://www.timeslive.co.za/news/south-africa/2017-10-24-two-years-and-counting-university-fees-frustration-mounts/">lack of leadership</a> with government pussy footing around the issue. One can only conclude that government has no way of handling this hot political potato and has resorted to the poor tactic of kicking the can down the road.</p>
<p>All the minister said was that further announcements would be made in the 2018 Budget.</p>
<p>But this is no comfort for higher education institutions. They now have to approach next year with no idea about how they’re going to address the growing gaps in their financial forecasts. </p>
<p>In my view this should be South Africa’s greatest priority, especially as the student voices are being raised about this. I’m not getting the sense that government appreciates the gravity of the situation.</p><img src="https://counter.theconversation.com/content/86367/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Owen Skae does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>South Africa’s finance minister Malusi Gigaba failed to impress when presenting the eagerly awaited 2017 medium term budget.Owen Skae, Associate Professor and Director of Rhodes Business School, Rhodes UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/856432017-10-18T15:05:18Z2017-10-18T15:05:18ZWhat’s at stake in South Africa’s new finance minister’s first budget<figure><img src="https://images.theconversation.com/files/190602/original/file-20171017-30394-eijha0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Reuters</span></span></figcaption></figure><p><em>There’s a great deal hanging on South Africa’s 2017 medium term budget policy <a href="http://www.treasury.gov.za/comm_media/press/2017/2017091801%20Media%20Advisory%20MTBPS%202017.pdf">statement</a>. Three factors are at play: there is political turmoil around the governing African National Congress, the country’s economy is performing poorly and this is the first budgetary statement from the new Finance Minister Malusi Gigaba. The Conversation Africa’s Sibonelo Radebe asked Jannie Rossouw to layout his expectations.</em></p>
<p><strong>What keeps you up at night in relation to this medium term budget?</strong></p>
<p>The single most worrying factor is the lack of economic growth South Africa faces. Growth has <a href="https://tradingeconomics.com/south-africa/gdp-growth-annual">slowed down</a> significantly in recent years and the economy flirted with <a href="https://mg.co.za/article/2017-06-07-sas-in-a-recession-heres-what-that-means">recession</a> after shrinking during the last quarter of last year and the first quarter of this year. The economy did <a href="https://www.iol.co.za/business-report/breaking-news-south-africa-moves-out-of-recession-11086750">bounce back</a> into positive growth during the second quarter but the outlook remains unimpressive. Only 0.5% growth is expected for 2017 and less than 2% over the medium term. </p>
<p>Owing to this lack of growth, <a href="https://theconversation.com/the-lesser-known-and-scarier-facts-about-unemployment-in-south-africa-83055">unemployment</a> is on the increase – it now stands at a staggering 27% – while government revenue is under pressure. It also implies that the government’s burden on the economy (for instance total government debt as percentage of gross domestic product, or<a href="http://www.treasury.gov.za/documents/mtbps/2016/mtbps/MTBPS%202016%20Full%20Document.pdf">Debt/GDP ratio</a>) will increase. </p>
<p>Government’s debt to GDP ratio is currently <a href="http://www.treasury.gov.za/documents/mtbps/2016/mtbps/MTBPS%202016%20Full%20Document.pdf">budgeted</a> to level out around 50%. This is to be welcomed because any increase in the ratio increases the interest burden. </p>
<p>But if slow growth and revenue shortfalls persist, government debt will increase. The debt to GDP ratio will be on its way to 65% of GDP in the medium term. </p>
<p>And should the combination of low growth and growing government expenditure continue after the period of this medium term statement (2017/18 - 2020/21), the debt/GDP ratio might be on its way to 100%. This projection really stresses one of the most worrying factors that has to be addressed in this statement: Limiting the level of government debt before it reaches this level. </p>
<p>In other countries where this level has been exceeded, severe adjustments had to be forced on their economies. Take the <a href="https://tradingeconomics.com/ireland/government-debt-to-gdp">Irish Republic case</a>. Remuneration levels and employment numbers in the civil service had to be cut dramatically to deal with the <a href="http://cpsu.ie/the-cuts/">Irish government debt crisis</a>.</p>
<p><strong>There is a new finance minister in place and he comes with shifting political dynamics. How do you rate him and what do you expect from him?</strong></p>
<p>It is difficult to rate the new minster, given that he’s only been in the job since April and the fact that he has not yet tabled his first budgetary statement. The only statement against which his performance can really be assessed is the <a href="http://www.huffingtonpost.co.za/2017/07/13/governments-economic-growth-action-plan-gigabas-speech-in-f_a_23027748/">14-point plan</a> he announced in July 2017.</p>
<p>We’ll be watching the medium term statement for his report back on progress in implementing it.</p>
<p>But Gigaba comes with worrying political dynamics, including accusations that he is party to <a href="http://www.fin24.com/Opinion/connecting-the-dots-on-gigabas-state-capture-project-20171009">corruption</a>. </p>
<p>And its difficult to separate him from the history of bad policy options of the African National Congress which has delivered the prevailing lacklustre economic performance. The fiscal crisis facing South Africa is a direct result of these policies. </p>
<p><strong>How significant is the medium term budget policy statement?</strong></p>
<p>It’s very important as it provides an overview of government’s plans for expenditure and for raising revenue over the next three years. A three year view is significant because it provides insight into planned government expenditure and indicates expected tax increases that South African taxpayers have to face. It also informs decisions of the credit rating agencies about South Africa’s fiscal stability.</p>
<p>The statement forms the basis of the <a href="http://www.treasury.gov.za/documents/national%20budget/default.aspx">annual budget</a> of government revenue and expenditure that is tabled in Parliament in February each year. </p>
<p>The statement is the first formal opportunity after the tabling of the annual budget where the government reports on the actual performance of revenue raised in comparison to budgeted revenue and of actual expenditure in comparison to budgeted expenditure.</p>
<p>This reporting by government gives an early indication of expectations for the main budget in February. For instance, if government revenue is underperforming, the expectation is that taxes will be increased the following February. Indeed a tax increase might materialise in this medium term statement.</p>
<p><strong>What in you view will be key focus areas in this medium term statement?</strong></p>
<p>As South Africa’s economic growth is currently lower than the forecast used for the <a href="http://www.treasury.gov.za/documents/national%20budget/default.aspx">2017/18 fiscal year</a>, tax collection has come under pressure. A <a href="http://www.fin24.com/Economy/gigaba-faces-r50-billion-budget-shortfall-economist-20170901">revenue shortfall</a> is expected for this fiscal year. The medium term statement is when the size of the shortfall will be formally disclosed.</p>
<p>Given expectations of a substantial shortfall, South Africans should brace themselves for substantial tax increases in the main budget in February 2018. The fiscal crisis might even be so serious that the government might decide to divert from previous practice and announce tax increases in this medium term statement.</p>
<p>Like any other government in the world, it raises revenue through taxes and use this revenue to fund its expenditure. If expenditure exceeds revenue, the difference must be borrowed, which adds to the level of government debt, or expenditure must be cut. </p>
<p><strong>One of the biggest budgetary headaches is the ailing state owned enterprises. What should be done?</strong></p>
<p>Government is really throwing good money after bad by using public money to bailout <a href="https://www.businesslive.co.za/bd/companies/transport-and-tourism/2017-08-23-secret-gigaba-plan-to-rescue-bankrupt-saa-exposed">ailing</a> state owned enterprises. I have said a long time ago that South African Airways should simply be <a href="https://theconversation.com/south-africa-must-free-itself-from-the-burden-of-owning-a-national-airline-64004">given away</a>. This is a much cheaper option for the taxpayer instead of never ending bailouts. The South African government should reassess its holding of state owned enterprises and close, sell or give away those that are no longer financially viable. Such action will remove a large financial burden on the South African taxpayer.</p><img src="https://counter.theconversation.com/content/85643/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jannie Rossouw is a C3-rated researcher and receives funding from the National Research Foundation (NRF). He is also a concerned South African taxpayer. </span></em></p>South Africa waits with bated breath for the 2017 medium term budget policy statement from new Finance Minister Malusi Gigaba, as it might reveal key signals of where economic policy is headed.Jannie Rossouw, Head of School of Economic & Business Sciences, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/735312017-02-26T16:59:14Z2017-02-26T16:59:14ZSouth Africa needs to do more to plug its deficit than target the rich<figure><img src="https://images.theconversation.com/files/158278/original/image-20170224-32726-12suf30.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">In an attempt to plug a growing deficit, South Africa is increasing wealth taxes</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Faced with a growing deficit, depressed revenue generators and a limited tax pool, South Africa’s finance minister, Pravin Gordhan, once again focused the tax increases on high income earners. By his own admission finding the right tax balance for the <a href="http://www.treasury.gov.za/documents/national%20budget/2017/">2017/18 budget</a> was a challenge.</p>
<p>South Africa is currently sitting with a deficit or shortfall of R28 billion – that’s by how much its spending plans outstrip its revenue. The minister has to find ways to plug the gap within the next two years. </p>
<p>Increased taxes are the most obvious and reliable source of government revenues. And so taxes had to be increased. But even within the tax space, the tax instruments available to the minister are limited because the country’s <a href="http://www.fin24.com/Economy/sas-low-economic-growth-shrinking-tax-base-20160209">tax base is limited</a>. </p>
<p>Of the 55 million people in South Africa, about 14 million are registered for tax and only 7.4 million are liable to tax, along with companies and trust. The other half of registered taxpayers fall outside the lowest tax bracket. Thus, from a direct income tax point of view only 14% of the population funds government expenditure, along with companies and trusts. </p>
<p>The trend to increase taxes on high income earners is in line with the progressive nature of the South African tax system. Its basic principle is, the higher you earn the more you will be taxed. Progressivity is a basic tenet of taxation and is applied worldwide – in developing and developed countries although more in some countries than in others. Economic inequality in South Africa makes this approach more important in the country.</p>
<p>But relying on tax increases – particularly on the wealthy – isn’t a sustainable solution on its own. Other ways of plugging the budget deficit would be to reduce or eliminate corruption and wasteful expenditure, and to cut government spending. The minister did emphasise the need to fight corruption, but he didn’t pronounce on any measures to reduce government expenditure.</p>
<h2>Squeezing high income earners</h2>
<p>This is not the first time the South African government has focused on high net worth individuals. Previous tax increases have targeted wealthy individuals who may not necessarily be high income earners. The focus in these cases has been on taxing events such as when assets are sold or dividends paid out or estate duties. </p>
<p>This time round the focus was on high income earners. The taxes the minister outlines come in different forms and shapes. These were the main ones:</p>
<p><strong>Personal income tax</strong></p>
<p>The highest rate of personal income tax for income above R1.5 million per year has been increased from 41% to 45%. This will affect about 100 000 taxpayers. It is expected to raise R4.4 billion in revenue in the 2017/2018 financial year. </p>
<p>High income earners face the biggest hike. But other income earners will be affected too. The minister tried to soften the blow for low and middle income earners by adjusting increases for their taxable income to account for inflation. Despite this, the net effect is that they will still be worse off.</p>
<p><strong>Withholding tax on dividends</strong></p>
<p>The withholding tax on dividends has been increased from 15% to 20%. This is a tax on dividends paid to residents and non-residents as well as corporates. Non-residents in countries with which South Africa has tax treaties will get relief from the tax. This tax won’t bring in much revenue as it will only affect the small number of people rich enough to own shares in companies – the same group of people who are likely to be affected by the 45% marginal personal income tax rate. In fact, the rate has been increased to discourage taxpayers who prefer to receive dividends as opposed to normal income. The increase is expected to raise R6.8 billion in revenue. </p>
<p><strong>Excise duties</strong></p>
<p>These taxes are the “feel-good-to-increase” taxes. They tend to be seen as trying to change bad behaviour such as alcohol abuse, smoking and indulgence in unhealthy foods. The truth, however, is that their primary purpose is to raise revenue. These taxes have been increased by more than inflation and are expected to bring in revenue of about R2 billion.</p>
<p><strong>Fuel levy</strong></p>
<p>The hike in the fuel levy will hit both the rich and the poor, although the poor will obviously feel it the worst. Fuel levies are passed onto consumers through higher fuel prices and higher transport prices. This increase is expected to bring in revenue of about R3.2 billion. </p>
<p><strong>Capital Gains Tax</strong></p>
<p>An increase in capital gains tax for companies and individuals was announced in 2016 to take effect in 2017. This tax applies to gains made on the disposal of capital assets such as a house and shares. The rate has been increased from 18.65% to 22.4% for companies and from 13.65% to 16.4% for individuals. The effect could be that taxpayers hold onto their assets rather than sell them.</p>
<p><strong>Value Added Tax (VAT)</strong></p>
<p>This remains unchanged at 14%. This is despite <a href="http://www.fin24.com/Budget/budget-2017-experts-share-tax-predictions-20170214-2">projections</a> that a 1 percentage point increase could generate between R15 billion and R20 billion per year. The rate was probably kept where it is because VAT isn’t a politically savvy tax to increase – it is a regressive tax, affecting the poor more than the rich. Also, an increase in VAT would increase inflation as companies would have to raise prices to collect the additional tax. This in turn would dampen already slow economic growth. </p>
<h2>Sustainable solutions</h2>
<p>By the minister’s own admission, continuing to raise the personal income tax burden over a long period could have negative consequences for growth and investment. On top of this, it’s not sustainable in the longer term simply to squeeze more and more out of taxpayers to fund government expenditure. The more they are squeezed, the more they are likely to resort to debt to maintain their lifestyles. There’s also the danger that people will simply revolt by finding ways not to pay tax.</p>
<p>What South Africa needs is a combination of economic growth and a reduction of expenditure – by tackling corruption as well as wasteful spending.</p><img src="https://counter.theconversation.com/content/73531/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thabo Legwaila does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In his 2017/18 budget speech, South Africa’s finance minister Pravin Gordhan opted to focus on taxing high income earners to find desperately needed money.Thabo Legwaila, Professor of Law, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/729012017-02-20T08:45:43Z2017-02-20T08:45:43ZExplainer: the nitty-gritty of South Africa’s annual budget<figure><img src="https://images.theconversation.com/files/157301/original/image-20170217-10220-5a783y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's Minister of Finance Pravin Gordhan flanked by his deputy Mcebisi Jonas and Director-General Lungisa Fuzile.</span> <span class="attribution"><span class="source">GCIS</span></span></figcaption></figure><p>Government budgets across the world are often delivered with some fanfare. South Africa is no exception. In February every year South Africa’s Minister of Finance presents his Budget Speech to Parliament amid national excitement.</p>
<p>As the biggest event in Parliament besides the State of the Nation <a href="http://www.gov.za/speeches/president-jacob-zuma-2017-state-nation-address-9-feb-2017-0000">Address</a> by the president, the budget speech sparks robust and emotional debates. </p>
<p>Although attention is focused on the speech, there’s a great deal about the budget process that isn’t well known. For example, it is incorrect to say that the Minister “announces” the final budget. Budget proposals only have legal standing once Parliament has followed a particular process to approve them. </p>
<p>What this means is that important components of the budget are still being processed months after the minister gives his speech. While it’s true that tax changes announced by the minister come into effect immediately, they can in fact be reversed months later.</p>
<p>The reason for this process is that it gives the public and its political representatives final oversight of budget decisions. This is appropriate given that the budget has profound implications for the lives of ordinary citizens and can have a major impact on economic activity. For example, raising revenue through taxes and allocating a large proportion to social spending can <a href="http://www.econ3x3.org/article/how-much-inequality-reduced-progressive-taxation-and-government-spending">significantly reduce inequality</a>.</p>
<p>Ultimately a budget reflects the social and economic responsibilities, and priorities, of government, balanced against the responsibility to ensure public finances are sustainably managed.</p>
<h2>The legal process</h2>
<p><a href="http://www.constitutionalcourt.org.za/site/constitution/english-web/ch4.html">The country’s constitution</a> requires that there be a process for Parliament to amend “money bills”. These are proposed pieces of legislation that would either change the way revenue is raised, or the way in which government funds are allocated for expenditure. Most revenue raised through taxes goes into the national revenue fund. An allocation of these funds is called an “appropriation” because, to be spent, the money has to be appropriated from the fund.</p>
<p>The <a href="http://www.gov.za/documents/money-bills-amendment-procedure-and-related-matters-act">Money Bills Act</a> that outlines this process is oriented around four main components of the budget that must be approved. These are:</p>
<ul>
<li><p>The fiscal framework: This provides estimates for overall government expenditure, revenue and, importantly, borrowing for the coming fiscal year.</p></li>
<li><p>Revenue proposals: How government plans to raise revenue, including any changes in taxes or tariffs and any new taxes.</p></li>
<li><p>The division of revenue bill: This determines how revenue is split across the local, provincial and national spheres of government.</p></li>
<li><p>The appropriations bill: This determines how funds for national functions are split across departments and other entities.</p></li>
</ul>
<p>The fiscal framework and revenue proposals must be approved by Parliament’s two finance committees, while the Division of Revenue and Appropriations Bills must be approved by the appropriations committees. South Africa’s two houses of parliament – the National Assembly and the National Council of Provinces – then need to consider and adopt the reports of these committees. </p>
<p>Beyond the speech, many professionals, analysts, journalists and politicians, interact with <a href="http://www.treasury.gov.za/documents/national%20budget/2016/review/default.aspx">the Budget Review</a>. It contains a lot of useful and interesting information, which is one reason <a href="http://www.gov.za/speeches/south-africa-comes-third-2015-open-budget-index-survey-16-sep-2015-0000">South Africa scores highly in international budget transparency measures</a>. But besides a table showing the proposed fiscal framework, and a section describing revenue proposals, it is mostly of no legal significance. The critical documents are the actual pieces of legislation.</p>
<h2>What Parliament must approve</h2>
<p>Within 16 days after the minister has delivered his speech the finance committees of the two houses have to hold meetings and public hearings. Each committee must also submit a report to the relevant house indicating whether they approve the fiscal framework and revenue proposals, or propose amendments.</p>
<p>There are a few oddities. For example, the actual bills that contain the tax proposals are often <a href="http://www.treasury.gov.za/public%20comments/TLAB%20and%20TALAB%202016%20Draft/">only given final consideration six months later in the year</a>. So, in theory, a tax change could be announced in the budget, be given initial approval by Parliament and then six months after it has already been implemented be amended or rejected.</p>
<p>Although it confers significant powers on Parliament, the Money Bills Act also imposes strict constraints. The rationale is that it obliges members of parliament to first agree on a sustainable level of national government borrowing (debt) before entertaining demands or requests from various spheres of government, or national departments, for more funds. Some view this as a “fiscally conservative” approach, although it’s possible to get around the constraints if there is a genuine desire or need to do so.</p>
<p>The turnaround time for the fiscal framework decision is only 16 days. The time for the Division of Revenue is also short: only 35 days to get the Bill passed. Bear in mind this requires consulting with all relevant stakeholders, holding public hearings, drafting committee reports and debating the reports in the National Assembly and the National Council of Provinces. </p>
<p>But there’s a full four months to pass the Appropriations Bill, which determines how money is split across national departments and other institutions. The reason for this is that the process requires consideration of all the relevant “votes” (allocation to specific departments or institutions). And any substantial changes to how money is going to be allocated would need to be negotiated across multiple votes. </p>
<h2>Public input and accountability</h2>
<p>The South African budget approval process is accompanied by an extensive public consultation process, required by <a href="http://www.constitutionalcourt.org.za/site/constitution/english-web/ch4.html">the Constitution</a> and Money Bills Act. While the Minister of Finance asks for public input prior to the budget speech, there is only so much scope for him to accommodate suggestions. Given how technical the budget is, the National Treasury has to focus its drafting efforts on engaging with national, provincial and local government. The parliamentary process therefore ensures that the public get the opportunity to make inputs into the final decisions. </p>
<p>South Africa’s parliament has not yet, to my knowledge, made meaningful amendments to the budget. There are two main reasons: lack of political inclination and lack of technical capacity. </p>
<p>Nevertheless, in a time when there are concerns about interference in the sound management of public finances and a greater appreciation for Parliament’s oversight function, it may be reassuring to know that it has substantial oversight powers in this area.</p><img src="https://counter.theconversation.com/content/72901/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Seán Mfundza Muller is affiliated with the Public and Environmental Economics Research Centre (PEERC) at the University of Johannesburg and previously worked at the South African Parliamentary Budget Office. </span></em></p>A lot more goes into the making of South Africa’s final national budget than many people realise. The process involves extensive legalities designed to ensure public oversight.Seán Mfundza Muller, Senior Lecturer in Economics, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/730872017-02-16T09:23:30Z2017-02-16T09:23:30ZWhy social grants matter in South Africa: they support 33% of the nation<figure><img src="https://images.theconversation.com/files/156969/original/image-20170215-27421-g4c06m.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Thousands wait in line outside the social services office in Cape Town to register for grants.</span> <span class="attribution"><span class="source">EPA/Nic Bothma</span></span></figcaption></figure><p><em>The South African government’s failure to fix a <a href="http://www.news24.com/Archives/City-Press/AllPay-wins-against-Net1-20150429">corrupted</a> R10 billion social grant payment contract has caused a crisis that <a href="https://www.dailymaverick.co.za/article/2016-11-14-sassa-social-grants-distribution-doomsday-and-behind-the-scenes-move-to-save-17-million-grants/#.WKRhXG997IU">threatens</a> to disturb monthly payments to millions of vulnerable households. The Conversation Africa’s business and economy editor Sibonelo Radebe asked Jannie Rossouw to explain what’s at stake.</em></p>
<p><strong>What would be the impact if social grants weren’t paid?</strong></p>
<p>It would have a severe impact on poor and vulnerable households. In the 2017/18 fiscal year there will be some <a href="https://www.dailymaverick.co.za/article/2017-01-27-groundup-sassa-grants-contractor-may-have-to-pay-back-the-money/#.WKVakm997IU">17 million</a> grant beneficiaries, 11 million of them younger than 18. </p>
<p>But it’s important to note that the number of dependants exceeds the number of social grant beneficiaries by a considerable margin. In most cases grants, <a href="http://www.sassa.gov.za/index.php/social-grants">which include</a> pensions, disability payments and child support grants, support entire households. These households will be destitute if they do not receive grant payments in a timely fashion. They will not be able to buy food as households receiving grants typically don’t have savings. To survive they have to spend whatever they receive. </p>
<p>This is why both the Minister of Social Development, Bathabile Dlamini, and her department have been highly irresponsible for leaving the distribution problem in limbo for so long. This even after they were <a href="http://www.news24.com/Archives/City-Press/AllPay-wins-against-Net1-20150429">instructed</a> by the Constitutional Court to make alternative arrangements. It leaves the impression that the minister and her department want to force the country into a crisis, leaving no option but to get approval to continue using the current service provider.</p>
<p>Neither the minister nor the department have shown any urgency to bring this matter to a speedy resolution. It’s also disconcerting that the minister seems to live in denial. She’s failed to admit that there’s a pending crisis of national proportions.</p>
<p>The minister should take political responsibility for this crisis. If she refuses to accept responsibility, it raises the question of whether the ministry she runs is needed at all or can be merged with another ministry, as its largest single responsibility is oversight of the legal administration and payment of social grants.</p>
<p>It is also disconcerting that others in leadership positions in the government have remained quiet. In any other country the head of state would have stepped in to try and defuse the looming crisis. But it seems that expecting any action from President Jacob Zuma in a crisis – except if he stands to gain personally – is too big an ask.</p>
<p><strong>Why are social grants so important in South Africa?</strong></p>
<p>They’re very important because of extent of poverty, the consequent number of recipients, and the amount paid out. Total expenditure on grants in the 2017/18 financial year will amount to more than <a href="http://www.treasury.gov.za/documents/national%20budget/2016/speech/speech.pdf">R150 billion</a>. </p>
<p>Grant money is not only used to support beneficiaries. It’s also used to provide broader support. Based on <a href="http://www.ajol.info/index.php/na/login?source=%2Findex.php%2Fna%2Farticle%2Fview%2F142070%2F131811&loginMessage=payment.loginRequired.forArticle">research I conducted</a> more than one-third of South Africans depend – directly and indirectly – on grant payments. Any disruption of grant payments will therefore have a massively detrimental impact on a large number of poor households. </p>
<p>In addition, the economies of small towns and villages would be hit hard because they are heavily dependent on grant payments being used to buy goods and services in local shops. One knock on effect would be that shop owners’ income streams would be affected and they wouldn’t be able to pay employees’ salaries.</p>
<p><strong>What impact have social grants had on poverty alleviation in South Africa?</strong></p>
<p>Grant payments redistribute income to poor households and have contributed to a <a href="http://sds.ukzn.ac.za/files/WP%2058%20web.pdf">reduction in poverty</a> in South Africa. </p>
<p>The social grant net is the government’s biggest poverty alleviation and redistribution intervention. There are others, such as government housing provision and free water allocation. But payments in grants outstrip these by a large margin.</p>
<p><strong>What are the weaknesses in the system?</strong></p>
<p>The main weakness is the fact that the grant system was expanded during a period of rapid economic growth. In 2002 South Africa only had some <a href="http://www.plaas.org.za/sites/default/files/publications-pdf/Woolard_McEwen.pdf">4,2 million</a> beneficiaries of social grants.</p>
<p>This grew rapidly to about 17 million beneficiaries as the grants were expanded to include older children.</p>
<p>Because South Africa was going through a period of rapid economic growth at that time it could easily afford new spending initiatives and projects.</p>
<p>But since 2008 the country has suffered a period of low economic growth. And there isn’t any expectation that the situation is likely to improve in the foreseeable future. As a result the system has become unaffordable.</p>
<p>An additional concern is that the Minister of Social Development has suggested there may be an extension of child support grants. This is simply <a href="http://city-press.news24.com/Business/Are-we-heading-for-a-fiscal-cliff-20151011">unaffordable</a> and will push South Africa closer to the fiscal cliff – the point at which its spending outstrips its revenues and it can’t meet its debt obligations.</p><img src="https://counter.theconversation.com/content/73087/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jannie Rossouw is an NRF-rated researcher and receives research funding from the NRF. </span></em></p>The unfolding social grant payment crisis in South Africa threatens the livelihoods of a third of the country’s population.Jannie Rossouw, Head of School of Economic & Business Sciences, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/642962016-08-23T04:38:17Z2016-08-23T04:38:17ZHow to get a better bang for the taxpayers’ buck in all sectors, not only Indigenous programs<p>A <a href="https://www.cis.org.au/publications/research-reports/mapping-the-indigenous-program-and-funding-maze">report</a> released today by the Centre for Independent Studies (CIS) has drawn attention to the lack of quality evaluations being conducted on Indigenous programs. </p>
<p>The report identified 1082 Indigenous-specific programs delivered by government agencies, Indigenous organisations, not-for-profit NGOs and for-profit contractors. It found 92% have never been evaluated to see if they are achieving their objectives.</p>
<p>While it oversteps in some regards, this report raises a very important point: we don’t really know what works if we don’t check. That’s a lesson that applies to all areas of public policy spending, not just Indigenous affairs.</p>
<h2>A bit of perspective</h2>
<p>The <a href="https://www.cis.org.au/app/uploads/2016/08/rr18.pdf">report</a> asserts:</p>
<blockquote>
<p>Indigenous-specific funding is being wasted on programs that do not achieve results because they are not subject to rigorous evaluation.</p>
</blockquote>
<p>This is a contradiction. With no rigorous evaluation, how could we know if it’s a waste or not? The point should be that we mostly don’t really know if those programs are improving outcomes. But a lack of evaluation is indeed a major problem, and we can do better.</p>
<p>The report only addresses Indigenous programs but it’s important to note the issues raised are not confined to Indigenous programs. I was not entirely surprised by these findings because I have seen similar patterns in other sectors, such as education spending. </p>
<p>A recent <a href="http://www.nber.org/papers/w22130.pdf">paper</a> published by the US’ <a href="http://www.nber.org/">National Bureau of Economic Research</a> reviewed the evidence from randomised evaluations on the impact of education programs (not confined to Indigenous programs) in developed countries. Of the 196 experiments it identified, only two were conducted in Australia.</p>
<p>If we were to withdraw funding from all programs conducted by Australian governments whose impact has not been verified through rigorous evaluation, then I don’t think we’d have many programs left.</p>
<p>That said, it may be that rigorous evaluation for Indigenous programs in Australia is of extra importance. In other areas (take education or design of the income support system), it is perhaps easier to piggy-back on the rigorous evaluations conducted in other countries; taking evidence “off-the-shelf” from overseas.</p>
<p>The CIS’ report is correct to draw attention to the paucity of rigorous evaluations. It feels good to spend money on Indigenous programs, just as it feels good to spend money on all worthy causes. But greater investment on evaluating those programs would almost certainly be money well spent, as long as the evaluations are of high quality.</p>
<h2>Not all evaluations are created equal</h2>
<p>We need to be very aware that not all evaluations are equally compelling. There can be a temptation for government departments to conduct tokenistic, low-quality evaluations that tick-the-box for a program being evaluated. </p>
<p>Many evaluations rely only on asking program participants or workers if they believe that a program has had a favourable impact. While such work has merit, it doesn’t actually measure impact. We don’t rely only on such evidence in medicine. Nor should we for social policy. </p>
<p>Such evaluations are usually inconclusive, which has the added benefit of not risking embarrassment to the minister championing the program. </p>
<p>We have made tentative steps toward fixing this problem. The Productivity Commission convened a roundtable of experts in 2009 on the topic of <a href="http://www.pc.gov.au/research/supporting/strengthening-evidence">Strengthening Evidence-Based Policy in the Australian Federation</a>.</p>
<p>In his <a href="http://www.pc.gov.au/research/supporting/strengthening-evidence/13-chapter10.pdf">submission</a> to the roundtable, Andrew Leigh – then a professor of economics at the Australian National University, now the shadow assistant treasurer – outlined what he called a “hierarchy of evidence” that would help policymakers better understand what social programs were actually worth the money and effort:</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/135085/original/image-20160823-18734-1d5s430.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/135085/original/image-20160823-18734-1d5s430.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/135085/original/image-20160823-18734-1d5s430.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=337&fit=crop&dpr=1 600w, https://images.theconversation.com/files/135085/original/image-20160823-18734-1d5s430.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=337&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/135085/original/image-20160823-18734-1d5s430.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=337&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/135085/original/image-20160823-18734-1d5s430.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=423&fit=crop&dpr=1 754w, https://images.theconversation.com/files/135085/original/image-20160823-18734-1d5s430.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=423&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/135085/original/image-20160823-18734-1d5s430.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=423&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="http://www.pc.gov.au/research/supporting/strengthening-evidence/13-chapter10.pdf">Evidence-based policy: summon the randomistas? Andrew Leigh, 2009</a></span>
</figcaption>
</figure>
<p>Leigh’s proposed hierarchy itself may need more scrutiny, debate and refinement. My view is that studies relying only on <a href="https://en.wikipedia.org/wiki/Matching_(statistics)">matching</a> or <a href="http://www.statsoft.com/Textbook/Multiple-Regression">multiple regression</a> are a lower grade of evidence than genuine <a href="https://theconversation.com/reimagining-nsw-tackling-education-inequality-with-early-intervention-and-better-research-57483">quasi-experimental work</a>.</p>
<p>The CIS report recommends:</p>
<blockquote>
<p>All programs receiving taxpayer funding should be subject to independent evaluations. At the same time, governments and organisations should cease collecting data that does not make a valuable contribution towards improving the level of knowledge about the effectiveness of programs.</p>
</blockquote>
<p>I think we need to go further and ensure that we conduct the best possible evaluations. This includes conducting randomised trials as part of the mix. </p>
<p><a href="https://thenumbercruncherdotorg.wordpress.com/2013/02/03/poor-indigenous-economics-part-i/">Nicholas Biddle</a>, a quantitative social scientist at the Australian National University, has asked whether the challenges facing programs targeting Indigenous people in remote Australia may have similarities to those targeting poverty in developing countries.</p>
<p>If so, then we should consider drawing on the considerable experience of the leaders in such evaluations, such as the <a href="https://www.povertyactionlab.org/">Abdul Latif Jameel Poverty Action Lab</a>, a network of professors who argue for policy informed by scientific evidence. Importantly, the Indigenous community must be involved in every step.</p>
<p>The CIS plans to follow up their report with a detailed review of the evaluations that have been conducted of Indigenous programs. </p>
<p>Whatever it finds, it is clear that more prominence should be given to understanding the variation in the quality of evidence.</p><img src="https://counter.theconversation.com/content/64296/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Siminski has previously received funding from the NSW Department of Education. </span></em></p>A new report highlights how little we know about what works and what doesn’t when it comes to publicly-funded Indigenous programs. It’s a similar story in other policy areas – but we can do better.Peter Siminski, Associate Professor of Economics, University of WollongongLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/551702016-03-01T05:36:58Z2016-03-01T05:36:58ZFactCheck: has Australian government spending as a share of GDP been at GFC levels since last election?<blockquote>
<p>Since the election, this government has had spending as a percentage of GDP at GFC levels. <strong>-– Shadow treasurer, Chris Bowen, <a href="https://cdn.theconversation.com/static_files/files/17/55170-2016-02-26-labor-media-release-media-release-labor-chris-bowen-2016-02-26.pdf?1518058726">media release</a>, February 17, 2016.</strong></p>
</blockquote>
<p>During an election year, the focus is once again on the federal <a href="http://www.budget.gov.au/2015-16/content/myefo/html/03_part_3.htm">budget deficit</a>. According to the most recent estimate in the government’s Mid-Year Economic and Fiscal Outlook (MYEFO), the <a href="http://www.budget.gov.au/2015-16/content/myefo/html/03_part_3.htm">deficit</a> is estimated to be around A$37.4 billion for 2015-16.</p>
<p>One of the main questions is whether the current and forecast deficits are due to not enough tax revenue or too much spending, or both.</p>
<p>Labor’s shadow treasurer, Chris Bowen, told journalists that the government has had spending as a percentage of Gross Domestic Product (GDP) at global financial crisis (GFC) levels since the last federal election, which was in 2013.</p>
<p>Is that right?</p>
<h2>Checking the source</h2>
<p>When asked for official data to support his assertion, Bowen’s spokesman referred The Conversation to the <a href="http://www.budget.gov.au/2015-16/content/myefo/html/16_appendix_d.htm">MYEFO 2015-16</a>, saying:</p>
<blockquote>
<p>Here’s the official data for the purpose of comparison.</p>
<p><a href="http://www.budget.gov.au/2015-16/content/myefo/html/16_appendix_d.htm">MYEFO 2015-16</a> (most recent data available)</p>
<p>Payments as a % of GDP</p>
<ul>
<li>2009-10: 26.0%</li>
<li>2014-15: 25.6%</li>
<li>2015-16: 25.9% (estimate)</li>
</ul>
</blockquote>
<p>Those numbers are found in Table D1 of the MYEFO, which show general government <em>cash payments</em> as a percentage of GDP. Here’s how those figures look in a chart.</p>
<iframe src="https://datawrapper.dwcdn.net/MOgvq/2/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="400"></iframe>
<p>Bowen’s spokesman also referred The Conversation to a September 2015 <a href="http://www.abc.net.au/7.30/content/2015/s4318562.htm">interview</a> in which treasurer Scott Morrison said that:</p>
<blockquote>
<p>… we’ve got 26% or thereabouts of GDP of government expenditure. Now that is at the level of what we were at in the GFC. </p>
</blockquote>
<h2>Cash payments vs expenses</h2>
<p>If you’re using the cash payments data in Table D1 of MYEFO, then Bowen’s statement is in the right ballpark – as long as you’re comparing with 2009-10 spending to represent “GFC levels”.</p>
<p>Bear in mind, though, that cash payments for the current financial year are an estimate only. Pedants will also note cash payments did, in fact, drop slightly as a percentage of GDP in 2014-15.</p>
<p>And as <a href="https://theconversation.com/factcheck-is-australian-government-spending-as-a-share-of-the-economy-falling-53962">this previous FactCheck on government spending</a> explains, it may be better to measure expenditure by checking the expenses data in Table D6 of MYEFO. That data shows expenditure when the expense occurs rather than when the cash payment is made (which is what Table D1 shows).</p>
<p>The expenses data detailed in Table D6 of MYEFO show expenses as a percentage of GDP as follows:</p>
<iframe src="https://datawrapper.dwcdn.net/Xodqt/3/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="400"></iframe>
<p>Still, Bowen’s statement is broadly correct – as long as you remember that the 2015-16 figures are an estimate only and you take 2009-10 as your reference point for “GFC levels”.</p>
<h2>What do we mean by “GFC levels”?</h2>
<p>The <a href="http://www.sbs.com.au/news/article/2009/09/15/gfc-timeline">global financial crisis began in late 2007</a> and continued throughout 2008. A literal interpretation of Bowen’s statement could compare current government spending with spending levels in 2007-08, when the GFC was beginning and when expenses as a percentage of GDP was at 23.8%.</p>
<p>The effects of the GFC really began to take hold in late 2008-09.</p>
<p>Former prime minister Kevin Rudd launched the A$42 billion <a href="http://ministers.treasury.gov.au/DisplayDocs.aspx?doc=pressreleases/2009/009.htm&pageID=003&min=wms&Year=&DocType=0">Nation Building and Jobs Plan in February 2009</a>, and by 2008-09 expenses as a percentage of GDP was at 25.8%.</p>
<p>In other words, both Bowen and Morrison have compared current expenditure with a period of time in which the federal government was spending heavily in an effort to stimulate the economy in a time of global crisis.</p>
<h2>The economic context</h2>
<p>While comparing spending between years is important, it can be a misleading snapshot when viewed without further context.</p>
<p>It’s worth noting that current government spending is, in part, due to commitments and policies of previous governments. The Coalition government is, to some degree, locked in to policies that began under their predecessors, such as the Gonski education funding agreements, the National Disability Insurance Scheme and the National Broadband Network.</p>
<p>The 2015-16 Budget also includes <a href="http://www.budget.gov.au/2015-16/content/myefo/html/16_appendix_d.htm">interest repayments</a> of A$11.166 billion on government debt that resulted from the huge increase in government borrowing to fund the previous government’s stimulus spending.</p>
<p>More broadly, the Australian economy has been <a href="https://theconversation.com/australias-economy-is-slowing-what-you-need-to-know-47036">growing since the 2013 federal election, but at a slower rate</a> than its long-term average rate of economic growth. </p>
<p>This means that the unemployment level has been higher recently than it was during the strong growth years. That reduces tax revenue for the government and means the government has to spend more on unemployment benefits and concessions.</p>
<p>But the economy is growing – the most recent annual figure from the Australian Bureau of Statistics puts <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0">economic growth</a> at 2.3%. This compares to 0.3% during the <a>financial year 2008-09</a> – the worst growth year following the global financial crisis (GFC).</p>
<h2>Verdict</h2>
<p>Chris Bowen’s statement that government spending as a percentage of GDP since the last federal election is at GFC levels is correct – if you define “GFC levels” as 2009-10. This is the year that GFC spending programs were at their largest.</p>
<p>However, it’s important to note that government spending in part reflects the policy commitments and borrowings of previous governments. <strong>– Anne Garnett</strong></p>
<hr>
<h2>Review</h2>
<p>The author’s arguments are correct. The statements around the economic context are very relevant here. If we adjust for the state of the business cycle (which is tricky to do) and for interest, then it could be argued that spending is down. But with <a href="https://theconversation.com/budget-explainer-debts-and-deficits-is-australia-really-the-worst-40086">debt up</a>, interest payments will be up for a while. So if we really want to tackle deficit and debts, then we need to get other spending under control or raise revenue. <strong>– Mark Crosby</strong></p>
<hr>
<p><div class="callout"> Have you ever seen a “fact” worth checking? The Conversation’s FactCheck asks academic experts to test claims and see how true they are. We then ask a second academic to review an anonymous copy of the article. You can request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.</div></p><img src="https://counter.theconversation.com/content/55170/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anne Garnett has received funding from the ARC and NCVER in the past.
</span></em></p><p class="fine-print"><em><span>Mark Crosby does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Shadow treasurer Chris Bowen told journalists that since the last federal election, the government has had spending as a percentage of GDP at GFC levels. Is that right?Anne Garnett, Senior Lecturer in Economics, Murdoch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/539622016-02-08T05:19:06Z2016-02-08T05:19:06ZFactCheck: is Australian government spending as a share of the economy falling?<blockquote>
<p>We want to go in the other path, which is where we’re heading – expenditure as a share of the economy under this government is falling, not increasing. <strong>– Federal treasurer Scott Morrison, <a href="http://sjm.ministers.treasury.gov.au/transcript/009-2016/">speaking with journalists</a> on January 29, 2016.</strong></p>
</blockquote>
<p>As commodity prices drop and the pace of growth in China slows, the Australian government has dialled down its forecast for economic growth and warned voters the deficit will increase to A$37.4 billion in 2015-16.</p>
<p>In the lead-up to the federal election, the government has been reassuring voters that <a href="http://www.sbs.com.au/news/article/2015/12/15/morrison-says-economy-right-track">the economy is on the right track</a>, and that reining in spending will help repair the budget.</p>
<p>So, is Morrison right to say that expenditure as a share of the economy under this government is falling, not increasing?</p>
<h2>Checking government payments data</h2>
<p>When asked for data to support his statement, a spokesman for the treasurer replied:</p>
<blockquote>
<p>the treasurer was clearly referring to the decrease in government spending to GDP outlined in the MYEFO appendix D, the relevant excerpt of which appears below.</p>
<p>As you will see the ratio goes from 25.9% in 15/16 to 25.8%, 25.3% and again, 25.3%.</p>
</blockquote>
<p>MYEFO refers to the <a href="http://www.budget.gov.au/2015-16/content/myefo/html/index.htm">Mid-Year Economic and Fiscal Outlook</a> released in December last year.</p>
<p>The relevant excerpt the spokesman sent to The Conversation was <a href="http://budget.gov.au/2015-16/content/myefo/html/16_appendix_d.htm">Table D1</a>, which reports general government <em>cash payments</em> in percent of GDP. </p>
<p>As shown in the chart below, the cash payments to GDP ratio goes from 25.9% in 2015-16 to 25.8% in 2016-17, 25.3% in 2017-18 and again 25.3% in 2018-19. </p>
<iframe src="https://datawrapper.dwcdn.net/JTt7G/3/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="420"></iframe>
<p>Take note here that the data for 2015-16 and 2016-17 are <em>estimates</em> while the data for 2017-18 and 2018-19 are <em>projections</em>. </p>
<p>This means that the decline in payments is purely hypothetical because it is based on estimates and projections that reflect the intentions of the government, not actual outcomes.</p>
<p>So, the decline is not currently happening under this government, but it might (or might not) happen in the future. And it might (or might not) even happen under a different government.</p>
<p>It depends a bit on what the treasurer meant by “is falling”. If we assume that he meant, in context, that this is the path the government is aiming for, then what he is saying here is a promise about the future, not a fact about the present. And, of course, he’s entitled to make such a promise. </p>
<p>But many people may have heard or read that quote and walked away with the impression that expenditure as a share of the economy is <em>currently</em> falling under this government. It is not. In fact, payments have stayed around the same, or marginally increased under the Coalition government. </p>
<h2>Checking government expenses data</h2>
<p>In statistical terms, many economists would say that expenditure should be measured when the expense occurs rather than when the cash payment is made. </p>
<p>Therefore an alternative, possibly better, way to test the claim of the treasurer is to look at expenses rather than cash payments data. </p>
<p>Expenses data are available from <a href="http://budget.gov.au/2015-16/content/myefo/html/16_appendix_d.htm">Table D6</a>, Appendix D, of the MYFEO (see chart below): </p>
<iframe src="https://datawrapper.dwcdn.net/83Tmm/1/" frameborder="0" allowtransparency="true" allowfullscreen="allowfullscreen" webkitallowfullscreen="webkitallowfullscreen" mozallowfullscreen="mozallowfullscreen" oallowfullscreen="oallowfullscreen" msallowfullscreen="msallowfullscreen" width="100%" height="380"></iframe>
<p>Government expense has been around 26% of GDP since 2013-14, and it is expected to remain at that level until 2016-17. </p>
<p>So, no evident decline seems to be occurring at the moment. Similarly, no decline has happened since the Coalition took office. </p>
<p>In fact, if anything, expenses have increased by roughly one point of GDP between the fiscal years 2012-13 and 2013-14.</p>
<h2>Verdict</h2>
<p>There is no evidence that government expense as a percentage of GDP is currently declining or has been declining since the Coalition took office in 2013. This seems, at first blush, to contradict the statement of the treasurer. </p>
<p>However, it is also true that estimates and projections reported in the MYFEO do indicate a possible future decline of cash payments and expenditure. </p>
<p>At best, the treasurer’s statement about decline in expenditure as a share of the economy should be regarded as a promise about the future, not a fact about the present. <strong>– Fabrizio Carmignani</strong></p>
<hr>
<h2>Review</h2>
<p>This FactCheck is accurate: neither payments (a “cash” measure) nor expenditure (an “accrual” measure) by the Australian federal government have declined as a share of GDP since 2012-13. </p>
<p>The government MYEFO tables cited in the FactCheck are authoritative for historical data on Commonwealth spending, and they in turn correctly draw GDP numbers from the Australian Bureau of Statistics national accounts. </p>
<p>As the FactCheck notes, both measures of spending are projected by the government to fall in 2016-17, with a bigger fall in the “payments” measure; and as the text notes, such forecasts may or may not be realised. </p>
<p>Australian nominal GDP in particular is difficult to forecast as it depends on factors like resource prices that can be volatile and have fallen faster in the last two years than the government has anticipated. <strong>– Jim Minifie</strong></p>
<hr>
<p><div class="callout"> Have you ever seen a “fact” worth checking? The Conversation’s FactCheck asks academic experts to test claims and see how true they are. We then ask a second academic to review an anonymous copy of the article. You can request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.</div></p><img src="https://counter.theconversation.com/content/53962/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Fabrizio Carmignani receives funding from the Australian Research Council for a project on the estimation of the linear piecewise continuous model and its macroeconomic applications.
</span></em></p><p class="fine-print"><em><span>Jim Minifie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Federal treasurer Scott Morrison said that expenditure as a share of the economy under this government is falling, not increasing. Is that right?Fabrizio Carmignani, Professor, Griffith Business School , Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/497582015-10-30T04:19:42Z2015-10-30T04:19:42ZQ&A: is fiscal discipline the right recipe for South Africa?<figure><img src="https://images.theconversation.com/files/100131/original/image-20151029-15338-1bfz64r.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's Finance Minister Nhlanhla Nene has a difficult task of performing a balancing act as the country's economy grows slowly. </span> <span class="attribution"><span class="source">Reuters/Sumaya Hisham </span></span></figcaption></figure><p><em>South Africa is facing slow economic growth, high sovereign debt, a high unemployment rate, and inequality. Finance Minister Nhlanhla Nene recently delivered a conservative midterm budget. Business and Economy editor Andile Makholwa asked Fiona Tregenna, Professor of Economics at the University of Johannesburg, about Nene’s choices.</em></p>
<p><strong>Given the challenges South Africa’s economy faces, should the government be exploring a more expansionary policy instead of fiscal discipline?</strong></p>
<p>The <a href="http://www.treasury.gov.za/">National Treasury</a> is certainly in a complex position, with slow growth reducing revenue while high spending needs remain. But I believe that in terms of counter-cyclical fiscal policy we need more spending, not less, to stimulate economic growth.</p>
<p>Rather than following a logic that we need higher growth and thence more revenue and from there more expenditure, it is actually higher expenditure that can stimulate higher growth. A crucial rider to that is about the type of expenditure: if it is unproductive or wasteful expenditure, it will not take us anywhere.</p>
<p><strong>What you would regard as productive expenditure and why would it make sense now? How would such expenditure stimulate higher economic growth?</strong></p>
<p>In very simple terms, this is when economic returns on expenditure exceed the costs of borrowing to fund that expenditure. An example is when the long-term returns on education exceed the long-terms costs of borrowing to fund that education.</p>
<p>Another way of thinking about it is if the costs of not spending exceed the costs of borrowing, it is better to undertake the expenditure. For instance, if roads are not maintained on time, the costs of eventually repairing them rise exponentially. It would have been more economical to spend the money and maintain them in the first place.</p>
<p>Another aspect is the stimulating effects of productive expenditure on the economy. This may, for instance, be through <a href="http://www.economicsonline.co.uk/Managing_the_economy/The_multiplier_effect.html">multiplier effects</a> or through crowding in of private investment.</p>
<p>There are other types of expenditure which are required based on meeting people’s basic needs and fulfilling their rights, irrespective of the narrow economic returns on that expenditure.</p>
<p>Where expenditure is fruitless or wasteful, not just in a narrow auditing sense but more broadly, and especially where we are paying interest on resources borrowed to fund expenditure, we pay for that not just in the current period but also down the line, financially and in terms of foregone opportunities for productive expenditure.</p>
<p><strong>South Africa’s industrial sectors have declined. Are the initiatives to support industrialisation sufficient to stimulate re-industrialisation?</strong> </p>
<p>The allocations to industrial development and related expenditure areas are definitely insufficient to support industrialisation and re-industrialisation. Expenditure on the line item “industrial development and trade” is actually being cut in real terms over the next three years.</p>
<p>Expenditure on “science, technology, innovation and the environment” is being cut in real terms over the next two years in particular. These areas are crucial for sustained economic growth. Even with constrained revenue, we need significant upscaling of expenditure to support industrial development.</p>
<p><strong>Does South Africa have the right kind of industrial policy and what such policy would should look like? What kind of support should government provide?</strong></p>
<p>Broadly speaking, I think that South Africa’s industrial policies are on the right track. Without these, South African industry would be in a far worse position. </p>
<p>But these interventions are not on anything like the scale needed. Significant upscaling and stronger interventions are required. We also need more supportive policies in other areas, notably macroeconomic policy. </p>
<p>Without this, industrial policy will not go far in supporting industrial development and re-industrialisation.</p>
<p><strong>Government has prioritised basic education in recent years. Could money be shifted from other departments to fund higher education amid the funding crisis. Where could the shifts happen?</strong></p>
<p>The <a href="http://www.treasury.gov.za/documents/mtbps/2015/">Medium Term Budget Policy Statement</a> actually cuts expenditure on post-school education and training in real terms in the coming year. But that was before the <a href="http://www.thepresidency.gov.za/pebble.asp?relid=20860">“0% increase”</a> announced by the president. </p>
<p>In the light of that announcement, additional national resources will have to be directed towards higher education. While the universities may be able to save some resources to effectively cover the 0% increase in fees, that will not be enough.</p>
<p>Some people are suggesting shifting resources from the skills development sector to higher education. But this would be short-sighted given the central importance of skills development for growth. Some of the additional expenditure may need to be funded through additional borrowing.</p><img src="https://counter.theconversation.com/content/49758/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Fiona Tregenna does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>South Africa needs to spend more to stimulate economic growth. But this should not be unproductive or wasteful expenditure.Fiona Tregenna, Professor of Economics and SARChI Chair in Industrial Development, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.