There is a huge gap between National Treasury’s priorities and the needs of the majority of people living in South Africa. Since 2012, Treasury has embarked on an ambitious fiscal consolidation drive, aiming its sights on a primary budget surplus where its revenue exceeds its non-interest spending. This year has been no different. 

What is also not different this year, is that the Institute for Economic Justice (IEJ) has made a submission on Budget 2022. It has also made a submission on the Medium-Term Economic Framework (MTEF), and will today make an oral submission, in addition to a written submission, to the Standing Committee on Finance and the Select Committee on Finance in Parliament on the fiscal framework and revenue proposals put forward in the Medium-Term Budget Policy Statement (MTBPS). Despite this commitment to the democratic process, Treasury’s priorities have by and large remained unchanged.

Despite feigning a shift — the MTBPS is filled with claims that Treasury supports the livelihoods of the majority. These claims are hollow because they are irreconcilable with austerity.

As the IEJ argued in our pre-MTBPS statement, fiscal policy should be used as a developmental tool and should support employment creation and poverty reduction by supporting low-income households. Instead, the MTBPS has put debt stabilisation as the overarching goal of fiscal policy. This is clear in its decision to use the lion’s share of the higher-than-estimated revenue overrun of R83-billion to support fiscal consolidation. 

While Treasury has previously, without substance, maintained that there is no austerity, this MTBPS makes it abundantly clear, given the intention to restrain non-interest expenditure. The implications of this for poor people are clearly spelt out in the Budget Review in which Treasury essentially tells struggling households they will have to endure poverty, hunger, and unemployment for yet another year.

Expenditure trends in key public services 

Basic Education

We have witnessed, for some years now, a steady decline in government spending on basic education. This trend is going to continue. When taking inflation into account, the average annual growth in the basic education budget remains almost stagnant at 0.3% over the medium-term period. When the growth in the number of learners is taken into account, a near-stagnant budget only makes the situation worse. Between 2021/22 and 2025/26 expenditure will fall from R20,156 to R19,478 per learner. Class sizes have also increased from 30.7 learners in 2018/19 to 31.4 learners in 2021/22. 

This fall in budget per learner, continued overcrowding in classes, a shortage of textbooks, and fewer teachers mean the quality of basic education will continue to decline. This will slow the urgent need to develop human capital, particularly for those who have been historically excluded from participating in the economy. This will further worsen existing racial, geographic and gender inequalities in the country.

Healthcare

Access to quality healthcare services not only guarantees well-being, which is paramount but also provides the economy with a healthy workforce. In spite of this, Treasury has decided that real-healthcare expenditure should decline from R246.3-billion in 2021/22 to R242.2-billion in 2022/23, and by an average of -2% over the medium term. These cuts come on the back of 39,000 vacant posts in the public health sector. The extent of cuts in healthcare is shocking in the wake of a global pandemic, and the documented huge amount of stress our public health services and healthcare workers are under. 

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These cuts will also increase the burden of unpaid care work for predominantly Black women and girls, impacting school attendance and labour-market participation which will further contribute to gender inequalities.

Social Protection 

The extension of the SRD grant is welcomed. It is disappointing, however, that the extension has not seen the R350 amount adjusted for Consumer Price Index (CPI) inflation, and that there is still no clear pathway on how permanent social support will be introduced following the termination of the SRD. 

A joint statement by progressive society organisations shows that the value of the child social grant is substantially below the Food Poverty Line. They further show that if the SRD grant had kept up with inflation it would now have been R400. At the rate at which food prices are increasing, the state is reneging on its Constitutional obligations by not allocating resourcing where there is a clear need. 

In the latest MTBPS, the Department of Social Development (DSD) accounts for over R1.77-billion of the R2-billion declared unspent so far in the 2022/23 budget. The MTBPS attributes this “to the low uptake of the SRD grant”. This low uptake, however, is a direct consequence of National Treasury having imposed the requirement for stringent criteria through an original budget cap of R44-billion. The IEJ, along with civil society partners, warned that the ridiculous threshold of R350 would exclude millions of people. The latest figures show that only 7.4 million people are now receiving the grant. This means that 3.5 million people, who previously accessed this lifeline, have been excluded. 

There are some positive elements in this MTBPS. Firstly, the improved investment into infrastructure. This is a step in the right direction. However, these supply-side measures need to be accompanied by increased investment in public services to support the development of human capital and the management of aggregate demand through counter-cyclical spending. 

Secondly, it is encouraging to note that the state will absorb some of Eskom’s debt. However, Treasury appears to be utilising this debt restructuring to ensure Eskom follows a path of unbundling and private sector participation in the energy system. This is concerning, given the evidence on the impact of market-based reforms on utilities. The reforms will result in high tariffs through high markups which undermine affordable energy access for households and small- and medium-sized enterprises. This path should be avoided. 

In the 2023/24 Budget, Treasury should consider progressive taxation as a means to raise revenue for developmental goals. Introducing progressive tax measures would create fiscal space for the provision of public services and reduce the existing income inequalities. It is worrying that the MTBPS states that there will be no provision for new revenue measures in 2023/24. This means that the reduction in corporate income tax from 28% to 27% will not be reversed and neither will a wealth tax or luxury VAT be introduced

Overall, MTBPS 2022 is a continuation of the unstainable austerity path Treasury has carved since 2012. This time around, we hope that parliamentary committees will meaningfully engage submissions made, by the IEJ and others, to ensure that South Africa adopts a fiscal framework and revenue proposals that are fit-for-purpose. DM/MC

Vuyisiwe Mahafu and Zimbali Mncube are with the Institute for Economic Justice’s Budget and Tax Justice team.