Budget cuts won’t save South Africa—It will be the most vulnerable ultimately paying the price 

31 October 2023

On Wednesday 1 November, Minister Enoch Godongwana will deliver the Medium-Term Budge Policy Statement (MTBPS) to Parliament. Fiscal policy can play a crucial role in fostering growt and development by ensuring the sustainable delivery of essential public services. Previou MTBPSs, as well as the latest National Budget, have shown National Treasury’s continue commitment to curbing spending on services, grants, and infrastructure. In anticipation of th MTBPS, over 100 Economists, CSOs, and researchers have rejected this austerity philosoph that cutting government spending will resolve the longstanding growth and social crises as wel as the debt trajectory of our country. Instead, the fiscal framework needs to be used to advanc inclusive development.

We are calling on the Minister of Finance to intentionally put the constitutional rights an well-being of communities and workers first over narrow and often unjustifiable budget defici targets, that will do little to alleviate the crisis of unemployment, poverty, and inequality and buil a more inclusive economy. In fact, failing to fund social provision can erode the credibility performance, and quality of the medium-term fiscal framework. Over time, this can weake effective public administration, and negatively impact clear oversight, participation, and contro over the budget. Over the longer term, it is not clear how much further and how much longe government spending can be cut without aggravating South Africa’s deep political fissures leading to social unrest.

The most pressing crises confronting us include the increased cost of living, joblessness an low income, and increased hunger. These are the result of fundamental structural problems.

These include an economy characterised by monopolisation, capital intensity deindustrialisation, the dominance of finance and services, and the reluctance of the state t play a more proactive role in driving economic development. The urgent challenges we face ca only be addressed through a clear job creation strategy including through public employmen programmes, expanding social protection including through permanent basic income support tabling supportive economic and industrial policies that stimulate job creation, and the provisio of quality basic services.

Our fiscal challenges in large part stem from the mass exclusion of an enormous segment of ou society from participating meaningfully in our economy. This exclusion is an outrage from both humanitarian and economic perspective, as it also puts a drag on growth, erodes the tax base and dampens government revenue. Our fiscal challenges are a reflection of the fact tha successive budgets have failed to prioritise solving the issue of economic exclusion. Continued fiscal consolidation without public consultation is simply putting the cart before th horse—addressing the symptoms, but making the underlying disease worse. 
As hunger and unemployment soar, the existing absence in public discourse surrounding th MTBPS of prioritising these crises will amount to the government disinvesting from the majorit and a negation of the Constitutional obligations to the state. Those living in South Africa need government that actively and effectively addresses the economic and social crisis as and whe required.

Contrary to the current narrative, there are alternatives and these should be taken up by th Minister of Finance before resorting to ill-considered, detrimental budget cuts. Renewed growt requires action to fix the electricity supply constraint, restore critical export infrastructure, an most importantly a clear and consistent programme of structural reform and transformation t create the conditions for a sustainable economy in a common society

In light of this, we demand the following from the Minister of Finance:

1. Adopt a developmental and rights-based approach to budgeting: The governmen must adopt a human rights and gender-responsive approach to budgeting. Fiscal polic should explicitly be framed as furthering developmental objectives. Human rights impac assessments, in collaboration with civil society and members of the public, can be use on an ongoing basis to assess the impact of current fiscal policy. The findings shoul guide future fiscal policy decisions. 
2. Immediately close the budget mismatch: This can be done by drawing on the R45 billion owed to the South African government in the SARB’s Gold and Foreign Exchang Contingency Reserve Account and through increasing shorter-term, less expensiv borrowing. Even if the entire mismatch were closed through borrowing it would onl increase debt levels by 1-2 percentage points and keep them well below recen estimates. 
3. Protect public services and public employment: Reverse the decision to freeze hirin in the public sector. Protect both the pay and employment of public sector workers especially frontline service providers, such as teachers, nurses, and social workers. 
4. Increase and expand the Social Relief of Distress (SRD) grant and the Chil Support Grant to the food poverty line: Increase the SRD and CSG to the level of th food poverty line. The SRD grant must be budgeted for in MTEF, while working wit stakeholders for pathways towards basic income support. 
5. Take concrete measures to address hunger and malnutrition: Undertake concret interventions to address the crisis of hunger and malnutrition stalking the 60% of familie living below the upper-bound poverty line, resulting in one in four children becomin stunted, with lifelong consequences. 
6. Extend the Public Employment Stimulus (PES): The PES has played an importan role in supporting over 1 million people between 2020 and 2023. National Treasury mus extend PES and make provisions for it in the MTEF in order to promote skill development and youth participation in the economy to curb youth unemployment. 
7. Enhance transparency and public participation: Conduct deliberate and activ engagement with members of the public and civil society post the MTBPS for short an long-term engagements in the lead-up to the 2024 budget cycle
8. Greater accountability, especially consequence management: It’s high-time tha Department’s and State-Owned entities with inadequate consequence management ar better held to account, including through disciplinary action against staff implicated i serious and often recurrent breaches of public finance management laws that erod public services and promote corruption. Enhancing accountability for public services als requires more meaningful oversight by elected public representatives. 
9. Raise additional revenue in the next budget cycle: To do this, the Treasury must:

• Remove tax breaks for high-income earners: The Budget allocates R305 billion in income support to the highest earning 30%. Eliminating or reducing tax breaks for those earning above R750,000 per year could raise up to R83 billion.
• Reverse the reduction of the Corporate Income Tax: The reduction of the corporate income tax rate from 28% to 27% has cost R11 – R13 billion a year.
• Remove ineffective corporate tax subsidies: This includes the Employment Tax Incentive from which the government is losing about R6.6 billion a year with little evidence that it has supported youth employment.

10. Do not increase VAT: Raising VAT would make the tax mix more regressive. It ha previously failed to raise the sums needed and disproportionately burdens the poor an low-income earners. 
11. Reduce the cost of borrowing: This entails moving to shorter-term loans that ar cheaper, renegotiating the terms of a particular debt, instating prescribed assets undertaking interest rate management through capital management techniques. 
12. Implement a Wealth Tax: In the medium term explore implementing a wealth tax. wealth tax can raise about 3% of the GDP in revenue. If National Treasury reall believes this is a crisis then this is an opportune time to consider and implement a wealt tax

Issued by:

Alternative Information Development Center
Amandla.mobi 
Budget Justice Coalition 
Rachel Bukasa | Black Sash 
Institute for Economic Justice
#PAYTHEGRANTS
Pietermaritzburg Economic Justice & Dignity Group
Public Service Accountability Monitor
RightfulShare
South African Communist Party
South African Federation of Trade Unions
Youth Capital

For further comment:

Dominic Brown | Alternative Information Development Center | 081 309 4973
Tlou Seopa | amandla.mobi | 067 654 6027
Motlatsi Komote | Budget Justice Coalition | 072 872 2200
Rachel Bukasa | Black Sash | 071 435 3737
Dalli Weyers | Institute for Economic Justice | 082 460 2093
Nathan Taylor | #PAYTHEGRANTS | 082 406 1208
Mervyn Abrahams | Pietermaritzburg Economic Justice & Dignity Group | 079 398 9384
Lindokuhle Vellem | Public Service Accountability Monitor | 0736017512
Karen Jooste | RightfulShare | 073 546 8663
Alex Mashilo | South African Communist Party | 082 920 0308
Trevor Shaku | South African Federation of Trade Unions | 073 378 7049
Kristal Duncan-Williams | Youth Capital | 072 904 0673