End of SA welfare state

This week the President opens Parliament with his State of
the Nation address. He will give direction, make promises
and set targets. Big names will comment and the press will
scramble to print context.
Outside, the insiders in the form of unionised workers will
protest that not much is done for them. The rand will
scratch its head and head back to where it was before.
But the real truth will remain dead silent. The truth is that
with only four out of ten adults working, only a quarter of
adults working in the formal sector and less than one out of
nine paying income tax, the poverty trap is sprung.
Our country has become a welfare state, similar to Europe.
But Europeans have found that it cannot compete as it only
has 7% of the world population and half its welfare
expenditure.
South Africa has more people on welfare than those who
are working, but still the pseudo intellectual hearts tell them
that the solution is more welfare.
There is no money for roads, dams or sewerage. It is
needed for welfare, education and health. Current
expenditure fills the ‘now’ but infrastructure helps reduce
future needs and produces returns.
Consumers also need to pay extra for everything they need,
from electricity to roads. The result is that employees
demand more money from their employers, who also need
to pay more for transport and electricity.
This leads to more closures or mergers and the loss of even
more jobs. This in turn, leads to more inequality. And I will
wager a bet that inequality will also be the theme of the
president’s speech next year, and that he may deliver it with
an angrier voice.
Risk aversion
More than 60% of JSE-listed companies’ revenue comes
from outside our country’s borders. These companies will
also continue to expand internationally, rather than in the
local market. It is not only private sector companies –
several state-owned companies are also expanding into
other markets to reduce risk.
The message from business is that they are not fleeing; they
are only expanding to build a different risk profile.
The reality is that the risks of doing business in other
African countries are falling quickly, while the rewards are
still very attractive. Unfortunately, the risks in South Africa
are on the rise, and the state taxes rewards.
Blinded by the light
Some solutions are blindingly obvious, but only a few see it.
At the recent Nersa (National Energy Regulator of South
Africa) hearings on Eskom, it was clear that government
needs to sell equity to finance overpriced power stations. If
not, electricity tariffs will become so high that not even the
employed could afford it.
There’s no money for big roads, rail or dams, unless we pay
upfront. South Africa has gone from post-paid infrastructure
to pay-as-you go infrastructure. The harsh light is blinding
us. It is clear that South Africa (like Greece and Spain) must
sell its airline, airports, ports and other so called jewels. It is
become an expensive farce to – much like unemployed
aristocrats – keep these assets.
A struggling airline competes with many welfare cheques.
Ironically, it is welfare cheques that attract votes, while
unaffordable electricity loses votes. Tolls even help the
opposition to attract votes.
The big European social democratic experiment with an
African flavour is a walking disaster. Within a decade,
Europe would have ditched its cradle-to-grave welfare state
policies. It will rather focus on education and affordable
people-care to remain competitive. I will bet that in a
decade or two there will be very few remaining economic
socialist states, unless of course, there is very little
economic activity left.
I bet that in the end, the light for economic activity will be
switched on. It will only be people with career limiting
notions who will call themselves socialists. They will be as
scarce as supporters of the old National Party.
It will take time to unlearn the propaganda we have been
fed over the years. South Africa was always a country with a
socialist flavour and while some social things will remain,
they will become less important for our future. Even the
blind can see the bells are ringing for socialist policy.
*Schüssler is the CEO and chief economist at
economists.co.za

Source: moneyweb.co.za/moneyweb-soapbox/goodbye-welfare-state

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