Author: Mike Schüssler
Next week it is that time of the year when we all rush around trying to make sense of a very big fat document and speech the finance minister makes in Parliament. We are looking at the budget and most economists are currently preparing or at least doing their homework in anticipation of the budget.
Looking beyond just the national budget in the big fat documents that brings to us, we have noticed something extraordinary this year and that is that if one includes local government expenditure and revenues in the budget in total we will find that for the first time in South Africa's history the actual income of all levels of government will exceed 1 trillion Rand for the first time. This means that looking at electricity charges that yours local government gets as well as the taxes you pay to SARS, will make up more than 35% of the total value of the South African economy in 2011/12.
This may not mean anything on its own but the fact of the matter is that South Africa is already a very highly taxed country compared to first world standards and certainly at least twice as heavily taxed as most emerging markets in the world today. While the President wants job creation and COSATU thinks that job creation is to be done through the state we have a problem already with state employment. As a percentage of our value we already pay our civil servants one of the highest amounts in the world today.
South African civil servants receive over 12% of our GDP in compensation (pay); the 10th highest figure in the world today. So if we wanted to double the amount of people that were employed by the state at the same salaries as the current holders of those jobs we would end up paying over 24% of our national product to civil servants of the state, making our civil servants the most expensive in the world. But even doubling the amount of civil servants would still leave us with an unemployment rate of close to 14% so to really bring down unemployment and to get the state to do its job properly we would have to do triple the amount of people working for the state.
The official unemployment rate would be about 5% if we triple the amount of civil servants and use the people that are unemployed, but that would still leave another 2,000,000+ discouraged work seekers without a job. Employing the discouraged work seekers at current civil servant salaries would add another 13 or 14% to the state salaries as a percentage of GDP. This would leave South Africa paying 50% of its GDP in civil servants salaries alone. Remember at this moment in time none of the civil servants has received a crayon or a motor bike or even sat at a table or worked on a computer. Al these things are extra.
Effectively employing all the unemployed people and discourage work seekers in the state at current civil servant salaries with the same equipment would mean that the government would have to increase taxes significantly to around 75% of GDP. So the R16 000 per month teacher would have to learn to live off R4000 anyway defeating the last 10 years’ worth of pay hikes in nominal terms and the last 120 years of real pay. This is not realistic and indicates that if government wants to employ the majority of the unemployed and discouraged government salaries would have to be slashed by two thirds at least. So more civil servants means less pay either way.
The sad thing about these figures is that the total number of adults employed would still not have reached 60% and SA and would still have one of the smallest labour force participation rates in the world today even including all the unemployed in total as well as discouraged adults in government employment. So even with an underperforming Labour force and a very low employment rate, creating roughly 6,5 million jobs would mean that we would is basically have to spend all of our GDP while South Africa would end up with the smallest private sector in the world. That would not create wealth but rather misery – ask the USSR.
South Africans have a very low labour force participation rate in the world today they have a very high pay rate especially in the civil sector and to think that government will be able to create meaningful amounts of employment at current to pay levels or in fact even the private sector which as a 40% discount in pay levels over the civil servant would not be able to afford the massive creation of jobs that we need in this country.
The only reasonable thing that we can do is to have a two tier Labour market, which at present is not politically doable even if the president and he's economic ministers find a way forward towards this two tier Labour market. The problem is that COSATU to is winning the language game completely as they continue to use words like poor worker, downtrodden, rich capitalist and the like, when they in fact should be described as overpaid greedy unproductive workers. The country is being held hostage by a bad teachers union called SADTU which is destroying education as they over protect government employees who impersonate teachers.
Perhaps the best way to look at this budget is to say that government cannot really increase taxes much any more before they kill the goose that lays the golden eggs, and they cannot create jobs by just employing people with money we do not have as that would also destroy the economy. So I think that the government will have to shift more towards a free market and market solutions to the crisis is in South Africa. The last five socialist decades are fast coming to an end in South Africa and , as they are doing around the world in countries like Greece states like California and islands like Iceland.