2023/24 BUDGET FRAMEWORK
As we face economic stagnation and ongoing inflation caused mainly by imported energy and food price hikes in 2021-22 – also known as stagflation – is it appropriate to cut the government budget and raise interest rates? This neo-colonial made-in-Washington strategy, combining the fiscal austerity promised to the International Monetary Fund and tight monetary policy as initiated by the Federal Reserve, is creating the conditions for social catastrophe and long-awaited political rupture.
Responding to critics who argue that Treasury is implementing the budget cuts that Treasury cemented into its 2020-22 IMF and World Bank loans, Minister Enoch Godongwana claims, this “is not an austerity budget”. However, in the succeeding sentence, he contradicted his assertion when he said this “ is a budget that makes tough trade-offs in the interests of the country’s short and long term prosperity”. The only short-term prosperity is being felt in the financial markets, which are celebrating his stinginess.
Maybe the minister’s understanding of austerity is limited to nominal figures. Our approach to government budget, and the macroeconomy at large, is not limited to nominal figures, but based on “real” analysis that incorporates the rate of inflation, which overall was 6.9% in 2022-23 (and much higher for poor people who have a higher share of energy and food in their household budgets).In real terms, nearly all categories of public expenditure – except paying the debt and providing business infrastructure – have experienced budget cuts, especially when we also factor in the 1% population growth last year.
But even if we restrict ourselves to nominal figures, there are cuts which are imposed in other areas of public expenditure such as in health and home affairs.
Except for economic development and parts of what is termed ‘community development,’ the budgets of all other areas of public expenditure in the public services are going to be cut, in real terms, over the medium term. In 2025-26, the compounded Consumer Price Inflation rate is estimated to be 25% compared to 2022. So if we had R100 to spend last year, in 2025 we would need R125 to buy the same amount of goods. Using that as our inflation rate, and assuming that for poor people it is much worse, the state budget will be far smaller then than it is now.
However, in 2023/24, there will be nominal cuts. Health is nominally being cut by -R245 million, agriculture and rural development by -R641 million, police by -R446 million, prisons and courts by -R35 million and home affairs by -R288 million.
Like we predicted, the 2022 “MTBPS and the pressure of the International Monetary Fund (IMF), World Bank, and rating agencies” was pointing in this direction: the direction of austerity. The so-called “trade-offs” after all, meant reprioritising expenditure which included increases in one part and decreases in other, but the nominal increases were still kept within the parameters of fiscal consolidation.
In our pre-budget statement, we pointed out that this fiscal consolidation “(government containing budget growth by imposing cuts) and structural reforms are enacted as part of attempts to create an “enabling environment” for private capital. The ANC’s commitment to neoliberalism is unquestionable.
Impacts of cuts
Beyond inflation, the budget does not consider the population that relies on public services. The need to expand infrastructure, procure more equipment and machines, hire workers, and do maintenance are all related to the population growth rate. Relying on inflation as a measure, would not be enough; we should add at least another 1% annually to the per person expectations of decent service delivery.
The consequences of these nominal and real cuts, without factoring in the population such departments serve, will perpetuate a problem of understaffing in various public institutions, along with inadequate and poorly maintained infrastructure, and shortages of and less repairs of working equipment.
Concretely, in even the relatively wealthy Western Cape, the Educator-to-learner ratio is 1:37; the Nurse-to-patient ratio is 1:250; and the Police-to-population ratio has worsened of about 1:450.
South African Post Office
Even when the CEO of SA Post Office (SAPO) said they need about R8 billion to recapitalise the SA Post Office, Treasury has given SAPO only a R2,1 billion allocation. This looks like a deliberate move of defunding – giving SAPO an allocation significantly lower than it indicated is required. Indeed, scavengers have been circling the SA Post Office for quite some time now, so the defunding underway will perpetuate the death spiral of SAPO, leading to it being sold eventually.
Beyond this, our interest in capitalising SAPO lies in our desire to save jobs and wages of workers. There are 40% wage cuts being imposed on workers this year, and a retrenchment of 6000 workers. With this underfunding, SAPO will more likely amplify retrenchments and wage cuts, as management seeks to lower operating costs in the wake of successive losses. Government is setting SAPO for ,failure so that it can be sold to private-sector scavengers.
Though taking on part of Eskom’s massive debt, Treasury is undertaking to pay an “odious debt” which should instead be cancelled. The debt was accrued in corrupt deal between the ANC and Hitachi, which, upon Hitachi winning the tender, paid a fat kickback – a “success fee” – to the ANC’s Chancellor House, which had taken a 25% share in a local Hitachi subsidiary just before the deal was done. That debt did not benefit the citizens who desperately need stable electricity provision. Indeed the Medupi and Kusile power stations are skorokoros due to ongoing acts of corruption, and are failing to help reduce loadshedding.
Treasury should not be carrying the debt, but should lodge a request to the World Bank and many other lenders – including the same ones who are now pushing through more debt via the Just Energy Transition Partnership – for the cancellation of the odious debt.
Once again on our demands
To resist this onslaught, SAFTU has adopted a mass campaigning programme at its 2nd National Congress. SAFTU will together with its allies in the working class movement, continue fighting to:
- Overhaul the economy to base it on the need to address unemployment, poverty, and inequality;
- Reverse the budget cuts, and increase spending in critical areas of service delivery;
- Ensure public sector wages are budgeted sufficiently so that more teachers, nurses, police, correctional officers, social workers and traffic officers are hired;
- Implement the 10% wage increase for public service workers. We reject the 3% that the government unilaterally implemented – which undermines collective bargaining and is inconsiderate of the rising cost of living;
- Invest in infrastructure and equipment for public institutions, particularly hospitals, schools, police stations and local government;
- Introduce a monthly basic income grant of R1,500;
- Introduce a job guarantee scheme so the 12.5 million workers can get jobs;
- Reverse privatization, and stop any plans to privatize publicly owned goods;
- Nationalization of the big corporates, big farms, mines, and banks;
- End corruption in the private and government sector;
- Introduce the wealth or solidarity tax so that the rich pay more tax;
- Increase the corporate tax, stop illicit financial outflows and tax dodging schemes;
- Stop government officials and business from looting up to 40% of the procurement budget;
- Do not increase the VAT, as it will hit the poor more than the rich;
- SA Post Office be allocated more funds to capitalize it;
- Reinvest in the transport system in which the railway system is refurbished, and trains brought back to fare people between towns and from workplaces to residential areas;
- A public works programme on decent wage;
- End corruption in government and the private sector;
- Introduce a wealth or solidarity tax so that the rich pay more tax. Increase the corporate taxes, stop the business from looting up to 40% of the procurement budget, stem illicit cash outflows and tax dodging schemes;
- Please do not increase the VAT as it will hit the poor more than the rich.