ROLAND White, the former finance official who gave testimony at the arms hearings this week, described the affordability of the arms package as "relative".

White fell back onto "relativity" in an effort to evade the question of whether the arms package was affordable or not.

Yet the comment is a welcome reminder that, in economics, everything is relative.

For example, a country's foreign debt should be measured relative to its export earnings. A government's deficit should be measured against the country's national income. And so on.

Similarly, SA's need for three state-of-the-art submarines ought to be measured against its other needs such as housing, land reform, poverty relief, infrastructure spending and job creation and skills development.

Let's look at spending on the arms package this fiscal year relative to other spending. The budgeted spending on the arms procurement package in the current fiscal year is R4,2bn more than double the amount specifically targeted for poverty relief and job summit projects.

Remember the cholera epidemic? Spending on arms procurement this year is less than the R3,2bn set aside for water schemes and related services.

True, government played down the lack of the delivery of portable water and sanitation services as a possible reason for the cholera epidemic. Yet given a choice between three state-ofthe-art submarines, on one hand, and giving more poor people quicker access to clean water and sanitation, on the other, clean water should win hands down.

Remember the minor panic over the land invasions at Bredell? This year's budget sets aside the princely sum of R851m for land affairs.

The extent to which the state's resources are being committed to defence is huge. The overall defence budget rises by a massive, inflation-beating 13,5% this fiscal year. Compare this with the pathetic increase of less than 2,5% in the housing budget, including provincial spending.

Moreover, the total housing budget is less than a third of the overall defence budget.

There was something sad about White's attempt to trumpet the saving of R800m in interest payments on credit used to import the defence equipment. Set against an estimated total price tag of R43bn, that saving is pitifully small change.

Moreover, a scary possibility has emerged from the arms hearings that the final price tag for the package is anyone's guess.

There is reason to believe that the R43bn number will keep on growing. Small consolation, then, in knowing that SA accessed really favourable credit lines for a spending decision which nauseates pacifist economists.

The price tag of the procurement package started off at R29,7bn. Now the figure being bandied about is R43bn spread from the 2000-01 fiscal year to 2011-12. That is the figure which appears in the budget review, which states that the R30bn figure in 1999 prices "will be affected by inflation-related contract price escalation and exchange rate movements."

Yet how will contract prices be escalated, and what are government's assumptions on the exchange rate? For obvious reasons, government does not want to disclose these projections.

It would be a bad idea indeed for it to show little faith in the rand's strength.

However, what if government is showing too much faith in the currency's ability to hold its own? What if there is another fullblown emerging markets crisis?

Sadly, the SA taxpayer still doesn't have proper answers to these questions.

White, who was on the negotiating team, acknowledged that formulas used to assess the possible cost increases of the deal had probably "not been researched sufficiently". Claud van der Merwe, an economist acting on behalf of the auditor-general's office, said: "It seems that no research was done on the cost escalation formulas."

White's response to the comment was that it should be addressed to the economists who did the actual modelling. "But in my view, your opinion is probably a fair one, " he added.

What a scary thought.

Even if one doesn't take a pacifist view, some aspects of the arms deal appear mind-boggling to those who are not naturally fascinated by fancy defence equipment.

Granted, there is a need for new equipment, but did it have to be on such a grand scale?

For the uninitiated, the need for three submarines appears baffling. Why three? Why not two, or one?

It is accepted that the submarines presently in use are becoming obsolete. SA will be without underwater capability by 2005. The so-called Daphne-class submarines were bought in 1986 when the apartheid government was fighting a "total onslaught". Those submarines will be decommissioned in 2005.

The "total onslaught" era is over. The navy's surface combat capacity is being strengthened with corvettes. Do we need three new submarines on top of (or below) the corvettes?

The decision appears especially ludicrous, given that the purchase of the U-boats was supposed to be offset against the construction of a huge stainless steel mill. The project is not commercially viable and has been scaled down considerably.

The huge expenditure on defence comes at a time when the trade unions are putting pressure on government to start a "dole" system for the unemployed.

I expect government's economists will find that the basic income grant is not affordable. Yet affordability is relative.  

With acknowledgement to Business Day.