While the battle against austerity in Europe has entered a decisive phase — with the election of the radical-left Syriza in Greece — the term is seldom heard with reference to South Africa. Despite this, and the global discrediting of austerity, Finance Minister Nhlanhla Nene’s recent budget can only be described as austere.
Austerity refers to policies used to reduce government borrowing via spending cuts and/or tax increases, often on the premise that this will stimulate economic growth. It masquerades in the budget speech under technocratically neutral-sounding terms such as “fiscal consolidation”, “rebalancing” and “cost containment”.
Rapidly reducing debt, the path Nene has chosen, can be disastrous. In 2011 a group of relatively conservative economists — including Nobel Prize winners Kenneth Arrow, Peter Diamond and Robert Solow — cautioned US President Barack Obama that it would be “dangerous to try to balance the budget too quickly in today’s economy”; the same can be said of South Africa today. The historical evidence suggests we should be concerned by the government’s approach.