MARK BARNES: State expenditure will never inspire confidence

To invest, or spend, that is the question. The state is a major player in the economy and where it invests, prosperity is likely to follow — locally, regionally, nationally and globally.

When a government prioritises expenditure over investment quite the opposite is a certainty. Investment inspires confidence and demonstrates commitment to a long-term future, while expenditure smacks of patching things together, hoping to get away with it while staving off the inevitable failure.

In substance we, the people (more accurately, we the people with jobs), directly and indirectly provide the revenue for the state. How much the government gets in taxes depends on whether the economy is thriving and growing (producing taxable income), or failing and declining.

There are choices to be made — escape velocity doesn’t come from hesitation. It may take a longer time for either a virtuous circle or a death spiral to become clear or manifest, depending on the base you start with. Are you climbing out of a hole, fallen into because of past ill-advised decisions or circumstances, or are you on a mountain top with a long, clear view of the future, grounded in the solid foundations that are the result of more planting than harvesting, more saving than consuming?

The effect of the state’s choices is binary. Either it is investing or spending, either it is building or depleting the country’s balance sheet, either it is living within its means or it is borrowing from the future. It’s that simple.

We are spending most of our budget on programmes that do not deliver financial returns. Socioeconomic programmes, social “development” (more aptly belated social rescue), and servicing debt make up the bulk of government expenditure. While this is particularly necessary in our desperately unequal society (and politically popular, while it lasts), it does not produce the financial returns necessary to recover from this position, let alone to reverse the trend.

As a result, the very population that votes for such a solution becomes increasingly impoverished and dependent over time. The fact that social grant payments have increased almost tenfold over the last 25 years is a measure of failure, not success. Grants are a rescue, not a stimulus. Borrowed money, borrowed time.

We’re not enabling or even encouraging people to swim. We’re just throwing them a lifeline to hold onto as the water gets deeper. State investment in capital projects and skills development will do far more to help address poverty, unemployment and inequality than helplines ever will. Most people would rather help themselves given half a chance. Building the base makes the water shallower.

Investment begets investment. The government needs to demonstrate its appetite for, and take the lead in, foundation capital projects (such as infrastructure) if the local private sector and foreign discretionary economic capital pools are to be persuaded to join in. 

We need to “jump-start” capital (despite the maturity of our economy) from outside our capacity to generate our own in the short term, to bridge the gap, to take us out of debt-funded deficits into surpluses for long-term investment. Loan capital, grants, subsidies and raiding reserves just won’t cut it.

Inequality will not be addressed through transfers of wealth from those who have it to those who want it. We have simply created a new elite. We need (instead, or at least in the next phase) net creation of wealth, earned through opportunity, not just reparation. We owe our children opportunity, not only support. We owe the population an environment in which individuals can build and reap the rewards of learnt skills, aptitudes and determination.

A strong population of independently-minded individuals with their own success stories, however difficult they were to achieve, will appoint strong government structures and individuals, from local mayors through to national leaders. Our (already many) local successes are case studies that could attract an increasing share of funding and spend. An increasingly dependent population will achieve quite the opposite.

• Barnes is an investment banker with more than 35 years’ experience in various capacities in the financial sector.