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Be outraged – there are alternatives to the Medium-Term Budget Policy Statement

- Thokozile Madonko

National Treasury has a pivotal role of leadership within government in providing immediate relief for the majority of South Africans as well as making the structural changes required for the long run.

The finance minister Enoch Godongwana has set out a Medium-Term Budget Policy Statement, often called Mini-Budget for short, that is unlikely to enable South Africans to “weather the storms that lie ahead”. South Africans should be outraged by the mini-budget. What South Africa needed to hear was a set of alternative macroeconomic policy instruments better suited to addressing our developmental needs while at the same time supporting efforts to tackle the impacts of climate change. The floods in KwaZulu-Natal and water scarcity in the Eastern Cape are just examples of the latter South Africans have experienced in the last year. Instead, Godongwana outlined a mini-budget for the country that follows neo-liberal austerity macroeconomic policies.  

As a matter of urgency, South Africans should be calling on the Minister to revisit the current outrageous and dangerous fiscal consolidation path. Oxfam has long argued that “austerity is bad economics, bad arithmetic, and ignores the lessons of history”. We need alternative policies that support building a dynamic South African economy based on well-being, an inclusive labour market, quality of work and livelihoods and green growth while avoiding environmental destruction. 

Despite National Treasury admitting that South Africa’s “economic growth rate is far too low to address its poverty and unemployment challenges”, they presented a policy that curtails the fiscal space needed to bring about sustainable growth and the recovery of biodiversity and ecosystems. The 2022 Mini-Budget is a lesson in austerity budgeting 101. For economist Busi Sibeko, “austerity is a [..] fiscal policy implemented by a state aimed at solving debt and growth problems during a period of economic stagnation … in an effort to balance the budget” Finance ministers commonly implement austerity policies which include “spending cuts, regressive tax increases, or a combination of both.

Real spending is falling

The 2022 Mini-Budget sets out to cut, curtail, or cap government revenue and non-interest expenditure on social services to close the gap between government revenue and spending within the medium term. In other words, National Treasury assumes that economic growth will simultaneously happen as it reduces the role of government in the economy via reductions in tax and state spending. For example, over the medium term, the government’s budget will be cut from 25.7% of GDP to 23.5% of GDP by 2025/26. At the same time, gross tax revenue will stay around 25.4% of GDP by 2025/26. While in the short term, Treasury will prioritise debt servicing to narrow the consolidated budget deficit from 4.9% of GDP in 2022/23 to 3.2% of GDP in 2025/26. Daniel Newman’s book Justice in a Time of Austerity: Stories from a System in Crisis shows how austerity budgeting in the United Kingdom, for example, was one of the “causes of the country’s ‘systematic impoverishment’”. Ultimately, public finances’ sustainability should depend upon fulfilling constitutional obligations and increasing the well-being of all. 

To date, there is no evidence that the fiscal strategy proposed by the Minister will “support the sustainable provision of essential services to low-income households” in South Africa. It can be shown that in the Eurozone, those member states that have prioritised deficit reduction have done so at the expense of economic development, and social and ecological issues, without a clear impact on their long-term debt sustainability. Sachs et al have argued that reducing resources to labour-intensive public resources such as health, education, and security is likely to lead to a severe decline in the quality of the services provided. For example, their research found the government spent about R20,000 (about $1,086) per learner in 2009. By 2021 this had fallen to about R16,500 per learner by 2021. If provincial governments’ budgets are executed without any changes, the next three years will see a significant negative shock to the real value of spending per learner. In a worst-case scenario, Godogwana’s mini-budget sees spending falling to R14,000 per learner by the end of the medium term. 

Unsurprisingly, austerity disproportionately impacts the roles and well-being of women, especially black women living in low-income and poor areas. Neo-liberal austerity budgeting has, the world over, failed to deliver quality public services, equitable distribution of wealth, increased equality, and advanced socio-economic and cultural rights while protecting the planet. While South Africa’s economy may have slowed, unpaid/underpaid South Africans are working harder than ever. The Minister needed to regain the vision and determination to strengthen South Africa’s economy by providing economic recovery for employment/livelihoods, the poorest people, women, and children while addressing the climate crisis. With the focus solely on GDP, debt and outdated growth ideas, the Minister has ignored this statistically invisible segment of the economy that enables all other forms of economic activity. A narrow focus on the value of market transactions has institutionalised an undervaluation of this unpaid/underpaid work primarily done by women despite constituting a significant part of the economy. 

There are alternatives 

It is not too late — even though unemployment, especially youth unemployment, is at record levels and inequality the highest in the world, we can learn from the global experiences of countries rejecting austerity. The experiences of these countries demonstrate that there are alternatives that prioritise the following key areas:

  • Returning full employment and decent work as a significant national goal and priority;
  • Giving much greater attention to gender equality and the mobilisation of women as a force for sustainable growth and reform;
  • Investing in high-quality care services such as health, early childhood development, education, social development and social protection for all for future productivity and fairness;
  • Reducing the extremes of inequality through progressive taxation and provision of public goods such as transport, water and sanitation, housing and energy; and
  • Reforming the banks and financial sector to make them accountable for provisioning within a rights-based framework for the real economy.

The Finance Minister could have delivered a different macroeconomic policy. A healthy economy is both a cause and a result of sustainable growth and development. The state is critical in providing public services within a healthy economy within planetary boundaries. The government should have adopted fiscal and regulatory decisions that look beyond short-term public finance considerations and consider unpaid/underpaid work. To achieve this, National Treasury engaging with line ministries need to leave their austerity comfort zones because failure to do so will mean being unprepared for the next health, environmental, civil unrest and economic crisis. 

Different targeting must underpin fiscal and macroeconomic policy-making within the National Treasury. I would advocate for new economic and social governance targeting full employment, greater equality of living and working conditions, fully resource public services and high rates of public investments primarily to support the just transition. This would finally move Treasury beyond reforms that focus one-sidedly on cost competitiveness and blind austerity. The best way to significantly increase the government’s ability to act in the economy is by increasing its resources through reforms in taxation, making it fairer for wage earners alongside increased and more equitable corporate taxation. Urgent steps should be taken to fight against tax avoidance, evasion, illicit financial flows, and base erosion. In the longer term, by ensuring a fairer redistribution between profits and wages, decent wages in both the public and private sectors will help reinforce South Africa’s internal demand, further strengthening more circular sustainable growth and quality employment/livelihood creation. 

Climate Matters 

Furthermore, the Mini-Budget failed to set out all the financial tools available to support South Africa’s global commitments to addressing climate change mitigation and adaptation measures. Increased taxation via the carbon tax is welcomed to target and reduce polluting emissions. The investment must be strengthened in strategic sectors based on environmentally sustainable industrial and service policies in line with a just transition. Again, National Treasury should explicitly show how the fiscal policy and objectives are compatible with the Paris Agreement and the UN SDGs. National Treasury has a pivotal role of leadership within government for providing immediate relief to the majority of South Africans as well as making the structural changes required for the long run.

By taking action and making employment/livelihoods, gender and the planet the central concern of macroeconomic policy, National Treasury could reduce the extremes of inequality over the medium term while financing the real economy. 

Thokozile Madonko is a 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.

This article first appeared in the Daily Maverick