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SA needs a bold, visionary mini budget and an end to austerity policymaking

SA needs a bold, visionary mini budget and an end to austerity policymaking
President Cyril Ramaphosa. (Photo: Elmond Jiyane / GCIS)
Thokozile Madonko
By Thokozile Madonko
25 Oct 2022
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When the minister delivers his Medium-Term Budget Policy Statement, he should show public leadership by announcing that the current approach to running the economy has failed.

The ANC-led government will present budget-related policy proposals for the medium-term from 2023 to 2025. The past two-and-a-half years have seen Covid-19 hit, Russia starting a war in Ukraine that rocked global markets, increasing the price of energy and food, not to mention the devastating drought and looming famine on the horn of Africa. Here in South Africa, people lucky enough to have a salary find it challenging to make ends meet. With rising inflation, constant load shedding and water shortages in parts of the country, South Africans are seeing wage losses. South Africa, like all countries, faces an uncertain future, and the government must engage in bold, visionary policy-making for this uncharted territory. 

The government’s policy priorities and vision for the future are reflected in the choices made to raise and spend public funds. The Medium-Term Budget Policy Statement (MTBPS), or mini-budget, tells us what President Cyril Ramaphosa and his executive prioritise on behalf of those living and working in South Africa. It sheds light on their response to the country’s economic and ecological turmoil and what they think, with public leadership, can be done to address it. What bold measures will they take to ensure the public interest is prioritised over private gain? Will they be prepared to take initiatives that help to level the most unequal society in the world, end gender-based violence, address obscene profiteering, and promote the renewal of public infrastructure to stimulate the recovery of biodiversity and ecosystems? 

Unfortunately, our public institutions under the guidance of National Treasury, the International Monetary Fund (IMF) and the World Bank are being told to pursue a “fiscal consolidation framework”, better known as a neoliberal austerity budget framework. 

Every year, Treasury publishes guidelines for national, provincial and local governments to assist in the preparations of their budgets. As a result, Finance Minister Enoch Godongwana already knows the policy framework. While seldom referred to, the guidelines give South Africans a picture of what he is likely to say. According to Treasury, departments must prepare for austerity in 2023 and the medium term. It says “the objective of fiscal policy will be to reduce the budget deficit and stabilise the debt-to-GDP ratio” while expecting departments to deliver public services by way of “efficiency gains and savings”. The latter are also known as budget cuts. As a result, for health, education, social development, housing and policing, for example, “no additional resources are available for the 2023 medium-term framework budget”. It is unlikely that any bold measures will be announced by the minister to ensure quality public services are delivered in 2023 and beyond. 

As a result, when listening to or reading the mini-budget, you should keep in mind the many families in this country that are having to make hard choices between eating, energy, safe drinking water, transport, health, work and education. According to the World Bank, about 55.5% (30.3 million) of the South African population live in poverty at the national upper poverty line of R992, while one in four South Africans is experiencing food poverty. At the same time, gross profiteering is taking place with, according to Forbes, the two wealthiest people in South Africa (Johann Rupert and Nicky Oppenheimer) owning the same wealth as 50% of the population. According to Oxfam, R350-billion flows out of South Africa illegally through corporations via illicit financial flows, base erosion, profit-shifting and wage evasion. 

Read in Daily Maverick: “Minister Godongwana will have to walk a financial tightrope on mini budget”

Despite this, in the media there remains a narrative that workers’ wages (both public and private) need to be restrained to prevent a wage price spiral and keep South Africa investment friendly. Conversely, Gita Gopinath, deputy managing director of the International Monetary Fund (IMF), has argued that there is a way to enable wages to rise and prices not, and that is to reduce (redistribute) company profits and, by default, cap executive pay and bonuses. Ironically, Gopinath is providing an alternative to austerity budget policymaking. 

Low taxes and wage evasion


Another reason for the lower public spending is that South Africa’s tax rates are relatively low, with most of the shortfall arising from low taxes on high-net-worth individuals and corporations. This year, the government announced a percentage-point cut on corporate income tax, assuming that companies will invest and pay workers. However, continued wage evasion by employers has also resulted in a narrowing of the tax base, with fewer South Africans earning enough to pay personal income tax. Inequality of income on the part of the private sector is the cause of the narrow tax base in South Africa. Declining taxes on corporations, and declining wages results, as economist Thomas Piketty argues, in growing inequality that threatens economic stability and growth. 



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Since the financial crisis in 2008, with declining wages and the introduction of austerity-style macroeconomic policymaking, every mini-budget policy has been based on magical trickle-down economics. Finance minister after finance minister has told us that by prioritising lower levels of social spending, directing public funds to reduce deficits, shifting from direct to indirect taxes, the main source being VAT, and increasing public-private partnerships, growth and inequality will magically be addressed. What has happened year after year is that increasingly poorer households either have to pay for health, education, childcare and other vital public services that should be free, or go without. Furthermore, they are met with considerable deficits in critical public services such as access to land, water, housing, health, education, childcare, public transport, energy, social protection and employment/livelihoods. Services cannot or should not be provided via private markets or the for-profit model. 

Read more in Daily Maverick: “The Medium-Term Budget Policy Statement needs to break with our recent and current failed national fiscal strategy”

Mini-budgets of the past have prioritised infrastructure projects primarily through provincial and local government via public-private partnerships. To date, these initiatives have failed to deliver clear benefits across the country for workers, the public, the environment and the government. 

Last, infrastructure budgets have not cured long-standing structural funding problems at provincial and local level, namely unfunded mandates. The government can use the budget to create stable, reliable sources of actual public infrastructure funding, such as schools, clinics, roads, renewable energy and public transport, which provide sustainability, inclusivity, climate resilience and affordability. 

Low growth, no jobs


It is clear that neoliberal policymaking has reduced the role of public-sector investment in the South African economy and has resulted in continued unequal distribution of wealth and income, locking in low growth and widespread unemployment. It has failed to increase employment, reduce poverty or increase access to quality public services, and has not prepared the country for the coming catastrophic impacts of climate change. As economist Fadhel Kaboub has argued, “it is the function of deficits and the national debt that matters, not their levels”. Bold policymaking by the minister will be to harness the role of the constitutional obligations of the government as an actor in the economy to use the maximum available resources to advance socioeconomic and cultural rights while addressing climate change. 

The Medium-Term Budget Policy Statement tells us what President Cyril Ramaphosa and his executive prioritise on behalf of those living and working in South Africa. (Photo: Elmond Jiyane / GCIS)



When the minister delivers his speech, he should show public leadership by announcing that the current approach to running the South African economy has failed. Recent crises, including load shedding, State Capture, drought, floods and social unrest in KwaZulu-Natal, have exposed the inadequacy of state provision and social supports and an overreliance on austerity budgeting and trickle-down neoliberal economics. This approach needs to end via massive redistribution of wealth and resources in the country to finance a better, fairer and more suitable future for all living and working in South Africa. By pointing to the massive resources that exist, I hope a new perspective is brought to the debate on the mini-budget, but which also helps workers, communities and others in the struggle with the facts. DM/MC

Thokozile Madonko is currently the senior researcher at the Southern Centre for Inequality Studies at Wits University. Using her master’s in political theory, she has worked in the areas of climate justice, development cooperation, public finance with a focus on health financing and gender-responsive budgeting, national, subnational and parliamentary governance, transparency and accountability.

 

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