National Treasury is intensifying the privatisation of the South African economy and further undermines service delivery and job creation.
The Medium-Term Budget Policy Statement (MTBPS) – the first display of the Government of National Unity’s (GNU’s) fiscal policy – continues with business as usual, with no relief in sight for the majority of people in the country. The main aspects of the government’s mini-budget are shaped by a harmful commitment to a primary budget surplus and prioritisation of debt reduction. The “debt-stabilising” primary budget surplus is being used as a “fiscal anchor”, normalising austerity for the rest of the decade. Social infrastructure and the provision of public services will become further out of reach for the majority of South Africans.
While fiscal austerity is continuing through the chasing of a primary budget surplus, there is largely a deferral of contested policies. The public sector wage bill, Social Relief of Distress (SRD) grant, and gender-sensitive fiscal policies do not feature prominently in Minister Godongwana’s speech. Rather, the emphasis is placed on creating a “conducive” environment for businesses and households through a transparent and predictable macroeconomic framework and structural reforms.
Austerity
The government is proposing a reduction in main spending as a percentage of GDP from 28,4% to 27,6% over the medium term. A R20,1 billion real increase for non-interest expenditure is proposed over the next three years, however, this remains inadequate and there are still cuts to key areas of social spending. Some of the main real cuts include reductions in spending on education and social protection. Between the 2024/25 and 2025/6 financial years, we can expect to see real cuts of R4,1 billion to learning and culture. Major aspects of the cuts to learning and culture are to post-school education and training.
Strikingly, there is a R21 billion difference for social grants specifically between the revised estimate for 2024/5 and the 2025/6 financial years. Although not explicitly stated, this most likely means that the Social Relief of Distress (SRD) grant will not be extended nor transformed into a Basic Income Grant. This would remove a critical form of income support for millions of South Africans who live below the poverty line and lead to greater levels of hunger and starvation. The idea floating around to transform the SRD grant to a more limiting and restricting jobseekers grant does not make sense when there are no jobs available. Supply-side interventions alone will not resolve the crisis of mass unemployment.
There are also cuts to the Department of Home Affairs and the Department of Agriculture and Rural Development of 12 and 4 percent, respectively in real terms over the next three years.
When cuts are made to areas such as education, community and social development, women are disproportionately impacted. Women are more likely to be employed in the public sector. At the same time, women are more likely to be formally unemployed and reliant on income support. Macroeconomic policy has specific gender outcomes. When the state cuts back on spending, it is often through the coerced resilience of communities that people survive. As the state withdraws from its role, women and girls are often the ones who end up closing the gap through unpaid care work. Austerity and the reduction of social protection have a disproportionate impact on women. Although the National Treasury has stated its intentions to have a gender-sensitive approach to fiscal policy, the word gender does not appear once in the MTBPS. Instead, we see a de-prioritisation of gender-equitable outcomes in the fiscal outlook.
Public sector wage bill
Government and the National Treasury are suggesting that public sector workers are overpaid, leading to a lack of resources for employing more public sector workers. While there are 37 500 public sector workers who earn more than R 1 million per annum, they account for less than 3% of the total public sector workforce. These salaries should be frozen and there should be an audit of these posts as well as the consultants who are paid exorbitant amounts. Nevertheless, the majority of public sector workers are teachers, healthcare workers and police workers. It is important that these workers are paid at competitive rates to ensure that we are able to attract trained professionals with the skills required. There is no trade-off between salary increases for the majority of public service employees and public service headcounts. What is needed is more spending for public sector workers – both in terms of improved wages as well as in terms of increasing the number of public sector workers. Instead, the government will reduce the size of the public sector even further through encouraging early retirement and has even allocated R 11 billion over 2025 to 2027 to facilitate this.
Debt
Needing to reduce the government’s debt has been the main reason given for the implementation of a harsh austerity programme. Over the past 5 years, austerity measures have not resulted in a containment of borrowing costs. Currently, South Africa’s general government debt is approximately R5.3 trillion, standing at a 74,7% debt-to-GDP ratio. While the growth in government debt levels is a concern, the current debt level is not alarming. There are additional mitigating factors – for example, approximately 90% of the government’s debt is owed in rands, this is a favourable situation as it reduces exchange rate risks and reduces pressure on the state to raise hard currency to service foreign-denominated debt. South Africa also has a substantial balance sheet, which includes high levels of foreign exchange reserves that can be utilised as part of a more effective and equitable public debt management strategy. Moreover, the underlying problem in the economy is not debt, but rather stagnating economic growth. Cutting budgets undermines prospects for economic growth and often results in a growing debt-t0-GDP ratio over the medium term. Austerity is therefore not only undesirable given that it exacerbates unemployment and inequalities; it is also unnecessary.
Privatisation and the Wall Street Consensus
Austerity is unfolding with the increased privatisation of the South African economy through Operation Vulindlela. The view is that only the private sector can facilitate growth, and only growth can create jobs. In this year, despite the promises of growth under Operation Vulindlela, economic growth dropped from the forecast of 1,3 to 1,1 percent.
The intensified neoliberal orientation of the GNU is shaped by structural reforms to de-risk private sector investment. This approach is what is referred to as The Wall Street Consensus (WSC). In the WSC framework, the financial risks of real investments are transferred to governments under the label of “de-risking”, on the condition that the risks of project failure and in some cases lower than expected private profits are carried by the state. These sectors include essential services such as water, transport and energy with the continued restructuring of Eskom and the establishment of a competitive energy market, to enable increased private sector investment in renewable energy projects as well as reforms to the transport sector opening the freight rail network to private operators. The increased privatisation and de-risking of private sector investment will be driven by public-private partnerships (PPPs), concessional finance and complex financing instruments primarily geared to guarantee profits to the private sector. The implications of these de-risking measures will be the increased cost of services and greater debt risks on the fiscus.
A key example of PPPs in South Africa is the Gautrain. The MTBPS states that the Gautrain is a tried and tested mechanism to deliver infrastructure. While investing in passenger rail is necessary to shorten South Africa’s world-record commuting times, the inaccessibility and underuse of the Gautrain is an example of what happens when PPPs can lead to substantially higher costs for the user of the service. As a result, rights’ rights-holding citizens are often turned into clientele and infrastructure spending is directed to the few.
Taxation
The National Treasury argues that “high taxes reduce the amount that households and businesses have for their current needs and their ability to build up savings”. This may be true in an abstract sense, but it is also true that South Africa is in the unique position of being the most unequal country in the world. There are repeated concerns around the debt-to-GDP ratio under a context where the tax-to-GDP ratio has been capped below 25 percent in the post-Apartheid period. The government’s failure to increase the total level of taxes significantly benefits the country’s well-off class at the expense of the majority.
Increasing the tax-to-GDP ratio is essential given that tax is one of the most effective redistributive measures available to the government. In the current context of public services on the verge of collapse, additional options ought to be explored to raise additional revenue over the medium term and beyond – such as the introduction of a wealth tax on the ultra-rich is critical. This is especially necessary given the expected underperformance of revenue by R17,7 billion compared to the 2024 budget predictions.
The MTBPS states that further gains will need to be made in compliance, but the MTBPS only shows an additional R2bn allocation to the South African Revenue Service over three years. In a recent presentation to the parliamentary finance committee, SARS commissioner Edward Kieswetter stated that the “funding shortfall over the three-year medium-term expenditure framework to restore its baseline was R17bn-R20bn”. In the same meeting, Kieswetter stated that SARS’ receipt of an additional “R226m yielded an additional R14.5bn of revenue”. It is difficult to understand why the underfunding of SARS should be expected to continue if additional funding is able to deliver a ‘return on investment’ of over 600%.
Recent cases—such as billionaire Christo Wiese’s R3.7 billion tax case—have shown how the ultra-rich continue to evade taxes to the tune of billions of Rand. Tax evasion, profit shifting, and illicit financial flows deserve far greater attention, given the current fiscal situation.
The undercollection of R17.7bn also underscores the need for South Africa to take a stronger position on the global tax reform debate. Thus far, South Africa has continued with the implementation of the OECD’s Global Minimum Tax. This is expected to bring in only R8bn of additional revenue in three years – a number contested by the University of Cape Town’s Tax Research Unit as being inflated. South Africa needs to push for more radical global tax reform in the United Nations, as negotiations towards a Framework Convention for International Tax Cooperation begin in full force next year. It is not enough to simply continue voting with the Africa Group – South Africa must become a leading voice in calling for the end to the OECD’s hegemony over international tax rules and for reforms that address widespread profit shifting by multinationals – such as the unitary taxation of Transnational Corporations (TNCs) as one entity.
Fiscal anchor
The 2024 Budget Review laid down the Treasury’s intentions to have a binding fiscal anchor for future debt sustainability. While there is currently a debt-stabilising primary surplus that restricts spending, the proposal to have a fiscal rule aims to make this primary budget surplus legally binding. State spending, however, is a legislative function. In this case, parliament is the decision-making body. Since parliament is legally bound to the constitution, a cap on spending imposed by the National Treasury would be inappropriate and undermine democracy. Moreover, restrictions in spending will likely lead to increasing unemployment and inequalities, as well as hamper prospects for growth, thereby failing to meet its own objective of reducing the debt-to-GDP ratio.
The MTBPS proposed by the government of national unity and national treasury once again ignores the interests and needs of the majority in order to appease the private sector and the very rich. We can expect more joblessness, hunger and the continued stagnation of the economy. Austerity and privatisation is the wrong medicine!
For comment contact:
Dominic Brown on 081 309 4973 or dominic@aidc.org.za
Aliya Chikte on 082 695 5659 or aliya@aidc.org.za
Jaco Oelofsen on 084 376 9019 or jaco@aidc.org.za
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