SAFTU EXPECTATIONS FROM THE MEDIUM-TERM BUDGET POLICY STATEMENT
October 25, 2022
ONE SWALLOW DOTH NOT SUMMER MAKE
November 1, 2022

FINANCE MINISTER ENOCH GODONGWANA AFFIRMS NEOLIBERAL DOGMA AS SOCIO-ECONOMIC-POLITICAL-ECOLOGICAL CRISES WORSEN

The Minister of Finance, Enoch Godongwana, has affirmed the predictions made by the South African Federation of Trade Unions (SAFTU) ahead of the Medium-Term Budget Policy Statement (MTBPS). In our pre-MTBPS statement, we registered our pessimism and lack of confidence in the possibility of the Mid-Term Budget Statement changing the current catastrophic policy trajectory: defunding of critical state facilities, ongoing subsidisation of the capitalist class, and creeping privatisation.

SAFTU disagrees totally with the ANC government’s under-developmental path. Our country will continue to be trapped in low economic growth with small zig-zags influenced by mainly by volatile international commodity prices. But this structure will never ever address the catastrophic levels of unemployment, poverty and inequalities – because ‘growth’ depends upon these crises.

For more than twenty-eight years, the ANC government has simply refused to consider the alternative to neoliberalism. Our economy largely remains neo-colonial. The bulk of exports remain raw minerals – coal, iron ore, gold, platinum group metals and manganese – which are not beneficiated locally, but sent to former colonial regimes and also to the East, especially China and India.

These minerals return back to the country as finished products. Our economy remain totally dominated by the Minerals-Energy-Finance complex. The infrastructure programmes our Ministers speak about are centered on facilitation of this movement of raw materials from the mines to the harbours. In one case, export of coal, the damage done by combustion of 80 million tonnes of those exports annually (though 60 million now, due to cable theft), is experienced through extreme weather events and climate change. The export and burning of coal boomeranged against Transnet in April-May this year, when the KwaZulu-Natal rain storms caused floods that destroyed so much rail infrastructure.

SAFTU certainly wants Transnet fixed and expanded, but of the additional Treasury gift of R5.8 billion going to Transnet this year, half is “shifted funds to repair infrastructure damaged by the recent floods, and half to increase locomotive capacity.” What needs to be asked is whether expanding locomotive capacity to export more coal is actually self-defeating, given the urgent need to address the climate catastrophe. After all, Eskom is about to borrow around R150 billion to decarbonise through the Just Energy Transition Partnership, which implies leaving coal underground instead of burning it in South African power plants. So Godongwana’s logic in raising Transnet coal-export capacity at this crucial time is climate-schizophrenic.

The power of local white capital in league with international forces – such as the Bretton Woods Institutions and credit rating agencies – resulted in the premature and speedy reduction of exchange controls and industrial tariffs. That in turn led to massive deindustrialisation, as manufacturing lost its position in the economy. prior to 1994 the manufacturing industry contributed over 24% of the GDP. It is now down to half that level.

The deindustrialisation and financialisation of the economy are at the core of our growing inequalities.

Other critical fault lines of colonialism remain intact. Examples of these include:

  1. The education system that continues to produce profoundly unsatisfactory results. Almost 50% of learners leave schooling before they reach grade 12. The quality of the education system is one of the worse in the world, especially in science and mathematics. State neglect of the vast majority of our children leads to the vicious circle of unemployment, poverty and inequalities – and will leave them as road kill on the information superhighway. And yet the Treasury insists on cutting another R11 billion (in real terms) from the education budget, and on reducing the real wages of teachers notwithstanding their heroic role during the Covid crisis.
  2. The levels of poverty in the economy mean that the overwhelming majority of black South Africans, women, the youth and elderly, leaves minimal purchasing power to drive the locally-oriented demand that turns the wheels of the economy. The R350 per month Social Relief of Distress grant was once was received by ten million recipients but has fallen to 7.4 million due to new restrictions. The 2022-23 budget carried R242.8 billion in this and the other social grants, mainly for child support, old-age pensioners and those with disabilities. The 2023-24 grant will rise to R248.4 billion, i.e. just R5.6 billion, or 2.3%. The Reserve Bank’s anticipated inflation for this coming year is 5.6% but if it stays above 7% – as the Rand keeps falling and imported goods rise in price – and if ongoing interest rate hikes are passed on by businesses or through higher debt repayment costs on housing, cars and other goods, then this represents a serious cut in poor people’s spending power.
  3. The levels of inequalities are untenable, and lead to periodic explosions of anger, looting and arson. With the world’s worst inequality, 10% of the population own 90% of the wealth. The mid-2010s income Gini coefficient of 0.63 – up from 0.59 in 1994 – has worsened considerably since Covid by all accounts.. Failure to address these inequalities means that we have no prospects of growing the economy.

We can say the same about the standards of health care and the impact of climate change. The race, class and gender bias during the devastation of both Covid-19 and extreme weather events – e.g. the 300 000 excess deaths and 500 dead in KwaZulu-Natal on April 11-12 – are glaringly obvious, as the white, wealthy and male populations were spared proportionate suffering.

The African National Congress leadership was captured by capital ahead of the 1994 breakthrough, so abandoned the idea of achieving growth through redistribution. The capture meant that the economic demands of the Freedom Charter such as the ‘wealth shall be shared’ were thrown out. The Reconstruction and Development Programme which advocated massive social infrastructure investments was replaced by the neoliberal Growth, Employment and Redistribution (GEAR) and various White Papers favourable to business interests.

In pursuit of neoliberalism, this government is obsessed with limiting its role to creating an environment for business to prosper. This is what led the government to cutting corporate taxes from the peak of 52.5% in 1992, to 27% today, as well as increasing the regressive Value Added Tax, privatising commercialising parastatals, and outsourcing services to both cronies and to white capital. All of this is being done with mistaken belief that when business creates wealth, the benefits will trickle down to the marginalised majority.

In reality, the wealth is exported, including not only through licit financial flows (profits, dividends and interest) that have soared thanks to Treasury and Reserve Bank exchange control liberalisation, but also illicit financial flows and declining resource wealth. The illicit wealth is so damaging that South Africa faces international grey listing, reflecting the slack approach of Treasury, the Reserve Bank and the international banks. And the depletion of our natural wealth reflects how little the mining houses reinvest profits from minerals back into productive capital or education.

So of course government’s strategy of economic liberalisation and looting has done nothing but worsen structural fault lines inherited from colonialism and apartheid.

The state-owned enterprises have been defunded and plundered through corruption, leaving them as empty shells, in which they can barely maintain positive equity. This has created perfect conditions for them to be privatised at very low prices. Today, Eskom, Transnet, Ports, Denel and the Post Office are in the pipeline of commercialisation and privatisation. South Africa Airways has recently suffered an outright take-over by the private sector, but the wreckage there is so serious that even that subsidised giveaway might not fly.

The Medium-Term Budget Speech reflected this drive to privatise what should be considered “public goods”, particularly water provision and the freight rail network. Minister Godongwana confirmed:

  • “requests for proposals have been issued for third-party access to the freight rail network and private-sector partnerships for the Durban Pier 2 and Ngqura container terminals”
  • “The process to establish a water regulator through the National Water Resources Infrastructure Agency Bill is also on track. The agency will enable effective management of bulk water infrastructure and facilitate private sector investment.”

These are explicit illustrations of the privatisation agenda by a government that has repeatedly demonstrated it is at the service of the private sector more than the public, on whose will it claims to serve.

Though Godongwana mentioned some financial assistance for Sanral – whose own strategy of privatising the highways in Gauteng was rejected by 80% of drivers – and Transnet, he did not mention the Post Office. The Post Office has been deserted, with the private sector invited to buy this essential service. Its former CEO proposes acquiring it under a Public Private Partnership (PPP), which in reality is a Public Private Plundering programme that socialises costs and privatises profits.

Treasury further promises a “primary fiscal surplus (i.e. revenues outpace spending aside from debt) of 0.7% of GDP will be achieved in 2023/24.” At whose expense will this surplus be achieved? The government’s obsession with achieving a budget surplus is premised on the idea that government will not only cut social spending but also limit investment in the production and provision of goods and services for the benefit of the private sector and profits. This happens at a time when the government ought to run a deficit, so as to close areas of need under the extreme hardships our country is suffering, and to make investments in public infrastructure that will pay off for decades and centuries to come.

Where will new surpluses from the commodity super-cycle be directed? It is well overdue to start compensating victims of the Durban floods for their climate reparations. Still, Godongwana is only giving a small fraction of the R60 billion estimated damage done on April 11-12 and May 21 when, respectively, 350 mm and 268 mm were dumped on KwaZulu-Natal: “The largest adjustment – R6.3 billion, or 49 per cent of the total – is allocated towards disaster relief, especially the April flooding in several parts of the country.”

The Eskom bailout is deferred until March, but Godongwana admitted it might reach R267 billion, when in contrast, society demands Odious Debt declarations against the World Bank and other financiers because of the notorious corruption – by Hitachi when it bribed the ANC – that is the main stock of the debt.

The damage done by austerity is not mentioned, much less calculated – including very serious protests and wage strikes against SOEs and the state itself. The 26% shrinkage of recipients of the R350/month special grant is simply brutal, and will generate much more crime, domestic violence and protest.

Not mentioned by Godongwana is the damage done to the macroeconomy by his February budget, especially the liberalisation of exchange controls – allowing R3 trillion of institutional investor flight – even though such capital outflows were a central reason for the currency crash from R14 to R18 to the dollar this year, and the rapid increase in South Africa’s foreign debt, which is at least $173 billion.

Furthermore, the continued defunding of Home Affairs means an average annual cut of 1,5% from R11.1 billion this year to R10.6 billion in 2025/26. But if inflation is 5.6% (as the Reserve Bank projects this year) then the nominal cut to R10.7 billion next year (3.6%) translates into a 9.2% real crash in funding for the coming year, and deep reductions in future years.

By implication, the defunding of Home Affairs will perpetuate the institutionalisation of xenophobia and criminalisation of migrants, and we will never see efficient processing of the citizenry’s most basic paperwork. The rise of right-wing reactionary groups that blame migrants for our socio-economic woes, joined by Home Affairs Minister Aaron Motsoaledi and two new political parties, premise their arguments and hide under the cloak of “undocumented foreigners”. The reason some migrants are undocumented is the defunding of Home Affairs, which has led to backlogs in digitisation and processing, to understaffing, and to a lack of the infrastructure to cater for the needs of both domestic citizens and migrants.

The government is still adamant about retaining its meagre R350 on a year to year basis, which cannot bring relief despite being called the Social Relief of Distress Grant (SRDG). SAFTU believes that unemployment is woven into the DNA of capitalism. As long as we live under capitalism, there will always be several people who are marginalised by the economy through unemployment and poverty. We reiterate our demand for the Universal Basic Income Grant of R1500 per month, paid for by a much more progressive tax structure for rich people and corporations.

Godongwana is brewing a catastrophic explosion in which the rich get richer and remove their monies from South Africa, and the poor are increasingly desperate.