press release
South African finance minister, Tito Mboweni, delivered his medium-term budget policy speech in parliament on the 28th of October. A five-year fiscal consolidation pathway was tabled, promoting economic growth while bringing debt under control. The impact of COVID-19 and the nationwide lockdown’s economic effects have made the outlook for 2021 more uncertain than ever, with the economy expected to contract by 7.8 % this year.
What the budget aims to do:
The government is planning spending cuts of more than R300 billion over the next three years. Reducing the public sector wage bill was proposed to support fiscal consolidation. Current budget guidelines proposed a wage freeze over the next three years. The public wage bill accounted for 40% of the government’s total expenditure during the 2019/20 financial year. The government targets to reduce the wage bill by R160 billion over the next three years. However, the MTPBS made no mention of the implications that this will have on some 1.3 million civil servants.
Additionally, R10.5 billion has been allocated to SAA towards the implementation of its business rescue plan. This is in addition to the R16.4 billion, which was given in February for settling guaranteed debt and interest. Mboweni stated that the treasury reduced spending plans of government departments to raise funds for SA Airways. Consequently, salary budgets for government employees in the departments of primary education, higher education, and health, among others, will be reduced over the next three years.
Rationally, the finance minister’s budget speech sets out the administration’s fiscal goals or stated aims. These have real-life consequences that directly affect citizens. It is thus fundamentally crucial that citizens are aware and educate themselves on what their government is doing, not just on legislative issues but also on economic and fiscal matters. As citizens, we have a contract with our public officials; we give them power and privilege in exchange for our due representation in state matters. Tito Mboweni owes it to us to let us know the country’s economic state and what this government plans on doing with public funds.
Our opinion:
There are criticisms that the MTPBS was nothing more than a set of neoliberal austerity measures. Mboweni made it clear that the priority of the MGTPBS is GDP growth and making South Africa’s economy investment-friendly. However, this type of economic growth does not always translate into human development. Those who will feel the consequences of the MTPBS are those who are most vulnerable in South African society. The minister admitted that the treasury’s plan carries significant risk, especially around the speed at which the economy is expected to recover, given COVID-19 and its effects nationally and internationally.
There is a significant risk from the pressure to spend on state-owned companies such as SAA, an insolvent company. Yet SAA was allocated an R10.5 billion bailout; meanwhile, departments responsible for crucial service delivery and social programs are forced to shave off millions. Unfortunately, critical departments such as education, health care, and other basic needs heavily relied on are now being cut to invest more money into SAA, which has only served as a debt-pit. According to Mboweni, these difficult measures must be implemented to build a prosperous future. Additionally, the minister spoke on COVID-19 and the impact it has on the future of work in South Africa:
“The crisis has highlighted and unfortunately widened inequality. We must continue to protect the most vulnerable.”
However, the budget measures, such as reducing the wage bill, implementing a wage freeze.0, and cutting critical programs, are likely to exacerbate already existing problems and contribute to deepening income inequalities. The youth are the future; thus, it is essential to ensure that they are set up for success for the country to have a prosperous future. The effects of these measures will be felt most by vulnerable communities. In a society that is already characterized by inequality, the current plan is likely to make it even more difficult for youths in vulnerable communities to succeed. The measures mentioned above make it clear that the government prioritizes a state-owned enterprise over its people.
Recommendations
South Africa has one of the unequal societies in the world, with income inequality continuing to deepen. The wealthiest 1% owns 67% of all the country’s wealth. The top 10% owns 93%. The remaining 90% of South Africa owns a meager 7% of the country’s wealth. Redistribution of wealth is key to addressing South Africans income inequality. As a human rights and youth empowerment organisation that works predominately with vulnerable communities we are concerned that the vulnerable working-class communities are the ones who will suffer the consequences of the measures laid out by the mid-term budget policy the most.
Therefore, Africa Unite suggests:
• Increase taxation on the wealthy as an alternative to some of the measures proposed during the MTPBS. Researchers at Wits indicate that “a wealth tax could be part of the solution to safeguard long-run fiscal sustainability and inclusive growth”.
• Additionally, they proposed a wealth tax that would only apply to South Africans with a net wealth superior to R3.6 million. They claim that this can raise R143 billion in tax per year, even with a 30% evasion rate. A wealth tax is a viable alternative to freezing wages and cutting critical social and service delivery programs, which are needed more than ever given the circumstances of COVID-19.
Nonetheless, although what the future holds is still uncertain, we will remain optimistic for a prosperous economic future in South Africa.
*Africa Unite is a human rights and youth empowerment organisation that works with youth from diverse backgrounds to prevent conflict, enhance social cohesion, and promote socio-economic development
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