The 2020 budget proposals risk further harm to the economy by slashing funding for socio-economic development.
The minister of finance, Tito Mboweni began his 2020 budget speech with a return to the analogy of the resilient aloe ferox that “survives and thrives when times are tough”. The Budget Justice Coalition (BJC) contends that while the people of South Africa are as resilient as the aloe – current policy decisions fall short of ensuring a thriving, productive nation and do little to reverse paralysing poverty and inequality. The people of South Africa deserve more than mere ‘survival’.
In total, the 2020 budget proposes a reduction to planned spending on government programmes and services by a R66-billion in 2020/21, R88-billion in 2021/22 and R107-billion in 2022/23. The BJC’s concerns that the 2020 budget proposals would serve to further undermine South Africa’s pro-poor agenda were once again affirmed.
Whose needs did Minister Mboweni’s budget prioritise?
Not those of people awaiting access to adequate housing, as R13-billion was cut from housing development programmes. Not the needs of children being taught in over-sized classes with leaking roofs and dangerous pit latrines, as R1.9-billion has been cut from the Education Infrastructure Grant. Nor for the 83% of people who rely on public health services with R4-billion cut from health funding and a delay in implementation of the National Health Insurance (NHI). And with R13-billion cut from PRASA and public transport projects over three years; commuters dependent on public transport weren’t prioritised either.
Sadly, the budget speech failed to explain how a deeper recession, ever-rising unemployment and inequality, and a reduction in the scope and quality of public services will help to achieve the “structural reforms” in network industries it has set its sights on.
This budget austerity will deepen the economic stagnation the country has been in and out of for the past decade, and plunge us into a full blown recession. This is because government spending makes up more than a quarter of all spending in the economy and the private sector has shown no signs of being able to make up the difference. Indeed, the thousands of jobs shed in the economy in the past decade have been lost in the private sector.
A further reduction in GDP (the size of the economy) that the spending cuts are likely to cause will result in an increase in the debt-to-GDP ratio. This is why the logic of austerity fails and is self-defeating as a budget policy, as the BJC has pointed out repeatedly. The director-general in the National Treasury, Dondo Mogajane, admits as much in his introduction to the budget review: “Reductions of this magnitude will inevitably have negative consequences for the economy and social services. But these short‐term costs are necessary to put the country onto a more sustainable footing.” We contend that these ‘short-term’ cuts have long-term negative consequences for the physical and human capital of the country.
So who is going to pay these ‘short term costs’?
Not anyone in the top 30% of income earners who pay personal income tax – they are getting tax relief next year. Not the even smaller percentage of people who have a tax-free savings account, they will be able to invest more of their wealth tax-free next year.
The proposed reductions to the public wage bill will likely have an adverse impact on personnel-heavy departments including health, education and policing, which are already experiencing critical shortages. The BJC is especially concerned about the inevitable impact these cuts will have on already pressured health and education sectors. In a 2019 submission to the Finance and Appropriations Committees of Parliament, the Coalition appealed to the state to ensure that wage bill cuts would not further undermine the workplace conditions and the delivery of essential services with an already unequal public service.
Through these cuts to the public sector wage bill, the National Treasury risks making it impossible to implement its plans. It also makes a mockery of attempts to achieve compromises between social partners. If the government is serious about building a collective vision, then budgetary priorities must be part of a collective process.
Some encouraging steps…
The BJC is encouraged that tax increases have not been imposed on poor and low-income households. But not increasing taxes on high-income earners, in the hope that the wealthy and corporations spend and grow the economy is foolhardy and contradicted by global evidence. Similarly, the BJC continues to wholeheartedly support efforts to reverse corruption and state capture and to reduce wasteful expenditure. But this will not, on its own, be enough.
The BJC also welcomes the tabling of the Public Procurement Bill in Parliament, which has been several years in the making and the further investments into the Auditor-General of South Africa. We hope the procurement and auditing reforms will translate into greater levels of compliance and more importantly higher performance by departments on their mandates and greater value for money.
Barriers to growth?
The Treasury often refers to ‘structural barriers’ to growth, focusing on network infrastructure such as rail, ports and digital infrastructure and the failures of so many SOEs. Some of these recommendations are sound and should be explored. But this budget ignores the most fundamental structural barriers in our economy that will guarantee that no amount of micro-economic reforms can succeed:
- An education and training system that does not equip the majority of people with the skills to survive and thrive in our economy and society.
- A health system that fails millions of people and thus undermines our productive capacity, as well as our physical and mental health.
- A working population that is not working, whose talents and potential contribution to the economy are wasted.
- Endemic crime and violence as a result, especially against women.
- More than 10-million unemployed people.
What is the alternative?
The national budget should be leveraged as a means of getting the wheels of the economy turning. Growing the economy must include a targeted social and economic stimulus plan. This must raise demand in the economy while expanding its productive potential and investing in its populace. It should be targeted at reducing inequality and support structural transformation and generate genuinely inclusive growth, through investment in infrastructure, employment, industries and communities. Poverty reduction requires public expenditure on basic needs.
The Budget Justice Coalition calls for an end to unsustainable budget cuts and a concerted effort to build the state’s capacity to promote inclusive growth and a public finance management system that meets South Africa’s developmental needs.
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ABOUT THE BUDGET JUSTICE COALITION:
The purpose of the Budget Justice Coalition is to collaboratively build people’s understanding of and participation in South Africa’s planning and budgeting processes – placing power in the hands of the people to ensure that the state advances social, economic and environmental justice, to meet people’s needs and well-being in a developmental, equitable and redistributive way in accordance with the Constitution, including the obligations of the progressive realisation of socio-economic rights contained in the South African Constitution.
Civil society organisations which are part of the Budget Justice Coalition include:
- the Alternative Information and Development Centre,
- the Children’s Institute at UCT,
- Corruption Watch,
- the Dullah Omar Institute at UWC,
- Equal Education,
- Equal Education Law Centre,
- the Institute for Economic Justice,
- Oxfam SA,
- Pietermaritzburg Economic Justice and Dignity,
- the Public Service Accountability Monitor,
- the Rural Health Advocacy Project,
- the Studies in Poverty and Inequality Institute, and
- the Treatment Action Campaign.