BY AIDC
As expected, the Treasury today put forward another austerity budget to Parliament. Tokenistic increases in social grants will not be enough to soften the deep social crisis faced by the majority of impoverished South Africans. The budget will also result in the further breakdown of service delivery in the country, the perpetuation of mass unemployment, and the continuation of unparalleled levels of inequality. This once again illustrates how the government is willing to prioritise the interests (and profits) of the rich at the expense of addressing people’s needs.
Despite the Finance Minister’s smoke-and-mirrors story of additional money, spending will decrease in real terms by R21 billion between the 2023/24 and 2024/25 financial years once inflation has been adjusted for. These cuts to social spending include a R9.8 billion decrease in the budget for learning and culture and an R8 billion reduction in the budget for health. This means bigger classroom sizes and longer waiting lines at clinics. Already hospitals and schools are collapsing. More and more people will not get the medical attention they require, and education outcomes will remain among the worst in the world.
It is also clear that the particular hardships endured by women (and especially black working-class women) are far away from the Treasury’s consideration. This budget not only shows no sign of gender-responsive budgeting, but in fact, it makes cuts in areas that disproportionately affect working-class women.
Social grants
While the permanent social grants have been increasing in line with headline inflation, this does not compensate for the drastic rise in food and electricity prices we have seen in past years. For example, while the permanent grants increased by 5% in 2023, food and electricity inflation was 11 and 12 percent, respectively. The Food Poverty Line (FPL), the minimum cost of food needed per person, is now expected to reach R798 in 2024. This means that the SRD and CSG are only able to cover 44 and 66 percent of the basic, minimum nutritional needs of an individual.
An announcement on whether the COVID-19 Social Relief of Distress (SRD) Grant will be extended beyond 2025 has been deferred until after the elections. We know what that means. When was good news ever postponed until after an election? In 2024/25, R34 billion has been allocated to the SRD grant. That is R10 billion less in nominal terms than the amount allocated when the pandemic started. The 2024/25 funding will only cover 8 million people – that’s half of the 16 million people whose income falls below the FPL. And the other half? What are they supposed to live on? The implication of this underfunding is that there will be mass intentional ‘errors’ of exclusion in the administration of the grant. This exclusion takes various forms, including barriers to accessing the grant, a qualifying threshold that is set too low, and hurdles in administering payments. All of these serve to exclude as many people as possible from actually accessing the necessary social support.
Public Sector Wage Bill
This Budget makes a CPI inflation forecast of 4.7% for 2024/25. According to the 2023 public sector wage agreement, the wage increase must be precisely that in the coming fiscal year. But despite that, the Treasury has budgeted for a slight real cut in the total wage bill. In the crisis-ridden sectors of Public Health and Basic Education, the budget makes real wage bill cuts of 2.5 and 2.2 percent respectively. There’s only one way the math’s work out when these figures are applied to the signed wage agreement for health and school staff – a further reduction of staff in workplaces that are already struggling to cope.
Tax
The removal of inflation-adjusted increases to the tax brackets is a positive step after years of excessive increases have had the effect of reducing the tax burden of the better off. However, it is still clear that expenditure cuts are greater than the additional revenue from the proposals presented. As the most unequal country in the world, it is a given that our tax base will be narrow, and therefore all options must be explored to use tax as a redistributive tool.
Even with a narrow tax base, the number of high-income individuals has been increasing in the past three years. Despite the hysteria around mass emigration of wealthy individuals, the number of high-income tax earners has increased by more than 80,000 over the past year, according to SARS statistics in the Budget Review. Mechanisms to maximize the progressivity of the tax system should be further explored to reduce cuts to the social wage and finance progressive economic development that centres on the needs of working-class and unemployed South Africans.
Heading into the budget, a cause for concern was the R56.1bn shortfall in tax revenue due to a sharp decline in corporate profitability, especially in the mining sector. This points to an underlying structural problem of the South African economy and its reliance on commodity exports, as a great deal of corporate income tax is tied to international commodity prices. While we call for the transformation of this commodity-dependent structure, so long as it is in place, the tax system must be adapted to compensate for this volatility. For example, windfall taxes should have been introduced to capture the record profits of mining companies in 2021/22. Instead, the revenue windfall was paid in massive dividends to shareholders, while the revenue boom from corporate tax was used to provide personal income tax relief, particularly for middle and high-earners.
For the first time, the Treasury has included estimated revenue from its implementation of the OECD’s 15% global minimum tax (the so-called ‘pillar two’). This amounts to a paltry R8 billion in additional tax revenue in 2026/27. This compares with the outflows of an estimated R400 billion due to illicit financial flows and profit shifting, the majority of which is due to tax evasion and offshoring by large corporations and high-net-worth individuals.
This is far from the promise made by Tito Mboweni and four other finance ministers in 2021 when they encouraged a hesitant Global South to sign on to a “global minimum tax that effectively puts an end to the race to the bottom and to aggressive tax planning by major international companies”. AIDC, along with many other progressive organisations and South-based tax experts, has been advocating for countries to resist signing on to the OECD deal as it is fundamentally biased and gives little benefit to the Global South, which is in desperate need of additional tax revenues. Instead, we join the call for the coming UN tax convention to supersede the work of the OECD and deliver a more radical solution.
GFECRA and the proposed fiscal anchor
The use of the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) is one of the necessary ways the balance sheet can be used to increase the size of the pie and reduce the need for austerity policies.
In 2022 and again in 2023, Finance Minister Godongwana opposed the idea of a “fiscal anchor”, and he did not mention it in his speech. However, it is a key idea in the Budget Review. The debate about this attempt to write economic policy prescriptions into law instead of contesting or supporting them in democratic debates and elections will no doubt intensify during the coming months. A fiscal anchor is a kind of binding constraint on fiscal policy that may set hard limits for government spending. Recommended by the IMF, a fiscal anchor that, for example, chases a primary budget surplus every year, as the Treasury is doing today no matter the extreme social crisis, is ultimately not concerned with the future sustainability of public services. Should a particularly strict fiscal rule be legislated, then this will constrain any future government and limit the possibilities for more expansionary economic policies, such as a reindustrialisation effort led by public finance or a much larger public sector share of the economy. This attempt to outlaw expansionary policies must be rejected by the public. The Treasury wants to enshrine neoliberalism into law.
Eskom
The government provides a further R76 billion (2024/25), R64 billion (2025/26) and R110 billion (2026/27) of debt relief to Eskom. Whilst this may provide some short-term relief, it does not help to address the unsustainability of Eskom’s debt. The first problem is that the debt relief is accompanied by strict conditions that are yet to be elaborated. It is important to reduce Eskom’s debt burden so that it can allocate more resources for the maintenance of the fleet. But by adding the debt burden onto the fiscus it is reducing the fiscal space for increased social spending. An alternative would have been to increase Eskom’s debt to the Government Employees Pension Fund (GEPF), as we have advocated many times before.
Secondly, the debt relief must be assessed along with the proposal to increase tax incentives for rooftop solar and businesses building solar PV to facilitate greater private sector involvement in the South African energy market. This is being enabled by a range of energy sector reforms, including the amendments to the Electricity Regulations Act and the establishment of an independent transmission grid. The independent transmission grid – the National Transmission Corporation of South Africa (NTCSA) – will be required to purchase power indiscriminately in a competitive energy market. The implications of this would be reduced sales volumes for Eskom, leading to rising tariffs, ultimately culminating in the acceleration of the Eskom death spiral.
The National Treasury mentions how it raised the $3.3 billion to support climate change, energy and just transition objectives. These loans from multilateral development banks and international finance institutions like the World Bank entrench policies aimed to privatise the energy and transport sectors. This entails the growth in the use of public-private partnerships (PPPs). The government argues that this will help to crowd-in private sector investment into infrastructure. However, in reality, PPPs are a mechanism to de-risk private sector investment and guarantee profits – the state takes the risk while the private providers enjoy their guaranteed profits.
Alternatives and proposals
By introducing the idea of a fiscal anchor, the underlying social problems of mass unemployment and stark hunger are sidelined in favour of chasing a primary budget surplus. Beyond addressing the immediate social crisis, increased real spending on public-led, low-carbon reindustrialisation, financed at first through the government’s balance sheet, can be a means to stimulate the economy and address the underlying structural barriers of both growth and redistribution.
The initiative with GFECRA has shown that it is possible to think outside the box in confronting the threat of an increasing deficit. Alternative ways of using the government’s balance sheet must be utilized to both halt and reverse budget cuts. Utilising the Government Employee Pension Fund, which has annual surpluses of approximately R50 billion, is just one of the possible measures that can be taken to mitigate against austerity. Furthermore, removing or reducing tax rebates for high-income earners could raise the required revenue needed for the prioritisation of service delivery and growth.
Ultimately, these measures would only serve as a stop-gap in the short- and medium-term. The fundamental problem underlying this budget is the lack of meaningful, job-creating and inequality-reducing growth and development in the South African economy. A progressive government will need to utilize these alternative funding mechanisms, among others, to drive growth and outpace debt interest costs in the long term. This is one of the few ways out of the quicksand this government has walked us into.
In conclusion
This budget has been spun to look like it is increasing vital social spending. In reality, all it does is give back a part of what was taken away in the Medium Term Budget Policy Statement last year. The Treasury continues on its quest for its holy grail – a primary budget surplus. Meanwhile, in the real world, the health and education services continue to collapse, clinic queues get longer, and class sizes get bigger. It’s the same old story – the poor continue to get poorer while the number of the rich continues to rise.
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For comment, contact:
Aliya Chikte – aliya@aidc.org.za or 082 695 5659
Dominic Brown – dominic@aidc.org.za or 081 309 4973
Dick Forslund – dick@aidc.org.za or 082 895 7947
Jaco Oelofsen – jaco@aidc.org.za or 084 376 9019
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