After the State of the Nation Address, the Budget is the most important political event that takes place in Parliament. The fact that for the first time a Budget had to be postponed, and that at the time of writing a further impasse has occurred between the members of the Government of National Unity (GNU), only compounds the warning signals about the GNU.
It affects political stability as well as the implementation of a coherent commitment to the transformation of the economy designed to favour the least advantaged.
After all, a Budget should be drafted under the shadow of the social-democratic model of the Constitution. The South African Constitution, with its commitment to substantive equality and the provision of a range of social and economic rights, sought to provide a roadmap towards the construction of an economy that would reinforce the constitutional values of equality, freedom and dignity for all South Africans.
Expressed another way, the economic core upon which the constitutional vision was based resembled the ideas of the great political philosopher John Rawls.
In essence, Rawls developed two principles that were central to the basis of a constitutional democracy.
The first principle was that citizens should be able to participate in politics as genuine equals and that wealth, inherited power and political connections should not have an unassailable grip on politics. In short, as he wrote, “all citizens should be free to live according to their own beliefs and to participate in politics as genuine equals”.
Widely shared prosperity
The second principle was that there was a need to organise the economy to achieve equal opportunity and widely shared prosperity, tolerating inequalities only where they improved the life prospects of the least advantaged. In other words, notwithstanding the principle of formal equality, measures designed to improve the life prospects of the poorest of the poor and the least advantaged — being those millions whose life chances were shattered by apartheid — deserve particular priority and concern.
Thus the second principle envisaged an economic agenda that would tackle inequality at its root by promoting good jobs, a fair distribution of wealth, greater democracy in the workplace, better healthcare and educational opportunities, which in our case would ensure that the youth of South Africa would be able to meet the challenges of a 21st Century global economy.
The South African Budget has never sought to encompass these ambitions, save arguably in the very early years after the advent of democracy. Over the past decade it has been little more than a bookkeeping exercise.
Even then the government failed to balance the books in the absence of vast borrowings that have left the country with an oppressive burden of interest payments.
In summary, the annual Budget has never sought to answer the question of how it would be possible to vindicate Rawls’ second principle, which is effectively enshrined in the Constitution. Further, there has been a marked absence of discussion on who carries the burden to implement this principle.
Take the present Budget. The aborted version seems to indicate that the government was intent on incurring significant additional expenditure. It proposed additional spending of more than R170-billion over the next three years. It included infrastructure investment, social grants, health and defence spending, as well as further spending on education.
Growth prospects
Of course, there had to be a “carry-through” cost of the 2025 public service wage agreement! Much of this expenditure is clearly needed if South Africa is to improve its growth prospects. Thus, to exclude this increased expenditure on the basis that no revenue can be raised to pay for it is therefore hardly conducive to inclusive economic growth.
But no debate has taken place as to how this expenditure should be funded. The public was never taken into the confidence of the government, notwithstanding a commitment to a deliberative democracy. Nothing was proposed to the various partners of the GNU until the morning of the Budget speech — and only then did the Treasury seek to pull a rabbit out of the hat by recommending a 2% VAT increase.
A deliberative process would have engaged with the justification for government expenditure and, at the very least, plausible evidence that efforts had been made to cut unnecessary expenditure.
For example, Tim Cohen has suggested that the Treasury may want to take a hard look at the R90-billion of annual Southern African Customs Union (Sacu) payments that South Africa disperses to Sacu partners, theoretically to mitigate the impact of its disproportionate exports to these nations. The real question, as Cohen raises, is whether this agreement has any particular use at this moment in time, save for costing South Africa about R90-billion.
That a plethora of institutions have been created (148 in terms of the 2023 Treasury review), all of which have absorbed vast sums of money from the fiscus, is another area that demands scrutiny. There is no reason why a scalpel should not have been administered to some of these agencies that provide very little, if any, benefit to the country.
And then there is tax. It is arguable that VAT may be the most efficient manner by which to collect revenue. But it causes clear damage to the poor, even with hikes in the social grant.
Tax breaks
As has been pointed out, the removal at least in part of tax breaks for pension fund contributions, particularly for wealthy individuals, could save the fiscus almost as much as a 2% VAT increase.
There is also the question of various tax incentives to corporations as to whether in fact they have produced any benefit to South Africa. The further question may be posed as to whether the 1% reduction in corporate tax from 28% to 27% made any significant difference to the development of the economy.
The sharp point is that there has been an appalling lack of discussion of these fiscal issues.
Two fundamental commitments have not been implemented. In the first place the draft Budget of 19 February 2025 does not adhere to the core principles as enshrined in the Constitution.
Nowhere is there any indication as to how the economy would be transformed by an economic strategy. In fact, the most depressing statistic is the fact that the Treasury is predicting that growth will not achieve 2% over the next three years, a devastating situation, notwithstanding the attitude of certain of the business sector at the G20 conference.
In the second place, the Constitution enshrined the principle of accountability. Accountability is not implemented when an issue as vital as a 2% VAT increase is only announced to the members of the Cabinet a few hours before the Budget is to be delivered.
The president may be right to argue that this provides the country with a further opportunity. The question is, to do what? If he is serious, it must be to ensure that budgets no longer are elementary bookkeeping exercises that provide no vision as to how the country is to accommodate the constitutional mandate for an inclusive economy of a kind that replicates Rawls’ second principle.
Furthermore, it must address the tax burden to ensure that the expenditure needed to transform the economy falls equitably on the population as a whole.
This columnist, for one, is not holding his breath that these challenges will be tackled. DM