Interim solutions are made permanent without solving the underlying structural issues
Short-termism pervades almost all aspects of SA’s psyche, from how we fill potholes with loose soil, construct tarred roads without solid foundations and provide a two-month fuel price reprieve without a permanent solution, to major fundamental policy shifts, as to social security and human settlements design. At an individual level, conspicuous consumption is visible through low savings rates and too low post-retirement income.
This short-termism results in three main unsustainable outcomes: short-term solutions are made permanent without solving the underlying structural issues; the segment of society the short-term solutions were intended to help are permanently left behind, with little prospect of ever catching up; and the panicked and reactionary suspension of institutional arrangements in favour of interim solutions destroys the foundation upon which society stands.
A case in point is the government’s R1.50 per litre reduction in the fuel levies for April and May, at an estimated cost to the fiscus of R6bn, which will be recouped from the sale of strategic crude oil reserves held by the Strategic Fuel Fund. It was a noble response to record high fuel prices, coming on top of rising food, electricity and general costs of living.
However, it was reactionary and not sustainable to abandon a long-standing pricing mechanism without putting a new regime in place. The arrangement expires at the end of the month, and the government will have to either forego future revenue by making this R1.50 reduction permanent or reverse the reduction and allow fuel prices to soar from June onwards.
The government intends to reduce the cost of fuel over the medium term through lowering the basic fuel price by 3c per litre, the termination of the demand side management levy by 10c per litre for petrol sold inland, and the introduction of a price cap on 93 octane petrol. Ultimately, for the benefit to accrue to society these measures will require a sacrifice in tax revenues, or shifting the burden to higher-income earners, sin taxes or some form of lifestyle tax.
In 2018 government increased value-added tax (VAT) from 14% to 15% to increase revenues and help bring the fiscus back to sustainability. VAT is a regressive tax as it hits low-income earners more than the higher-income earners. The increase in a regressive tax in 2018 and the reduction in fuel levies and the proposed reduction in the price of basic fuel over the medium term implies that the negative impact of higher VAT on lower-income earners and the poor was of less concern then than the impact of higher fuel prices now.
What has changed? The fiscus is no more sustainable and unemployment worse than it was in 2018. The cracks in socioeconomic conditions, which have been papered over by social grants for a long time, have been exposed by the Covid-19 pandemic. Energy security is no longer guaranteed, with the public enterprises minister reported to have raised the prospect of stage 8 load-shedding. And in an unusual but factual turn of rhetoric, the view that government can be the major job creator is no longer dangled like a political carrot before voters.
In the meantime, society is increasingly frustrated by glacial reform. This is what seems to be pushing reactive and short-term solutions. However, these risk becoming permanent even though they are not solving the underlying structural features of the economy, which reproduce high unemployment, poverty and inequality.
Institutions and regulations are set up to help society function in a way that is predictable and repeatable. When their functions are suspended their credibility is reduced. Better to amend and incorporate the conditions through which the standard arrangements can be suspended before implementing short-term measures that might be difficult to reverse, or that have negative consequences elsewhere.
The response to rising fuel prices is about to demonstrate the dangers of reactionary responses to shocks that are outside institutional arrangements.