What does the Budget speech mean for social cohesion?

By Published On: 2nd March 2020

Notwithstanding that Minister Tito Mboweni may have wanted to call it something else, the Budget Speech made it clear that we are now in austerity territory, writes Jaynisha Patel 

Inequality is considered to be one of the most divisive features of South African society, and it is also considered to be the primary obstacle standing in the way of a reconciled post-apartheid South Africa, reported in the South African Reconciliation Barometer Survey, a nationally representative public opinion survey of the Institute for Justice and Reconciliation.

For the vast majority of South Africans, not only does the national budget represent a valiant attempt to balance the state’s books, but it is also reflective of the government’s commitment and capacity to use the fiscus to minimise the divisions that exist within society.

To this end, other than the extent to which key revenue and expenditure targets measure up, Wednesday’s Budget Speech should also be examined by the extent to which the reported measures actively tie into bridging the divisions that still exist in today’s society.

For Treasury, this was potentially one of the most challenging budgets tabled in almost two decades.

The confluence of global headwinds, local policy uncertainty, a sluggish economy, and years of “state capture” have all contributed to bringing the South African economy to its knees.

Gone are the days of counter-cyclical budgeting, where funds could be administered to poorly implemented policies.

Notwithstanding that Minister Tito Mboweni may have wanted to call it something else, the Budget Speech made it clear that we are now in austerity territory.

There is minimal room to waver from planned targets, and if the government is serious about employing its expenditure towards achieving a more equitable and prosperous society, this budget speech had to demonstrate its commitment by arresting the decline in certain areas of the economy, cutting out fruitless expenditure, and putting measures in place to enable the economy to grow in an inclusive manner.

In light of the resource constraints that Mboweni faces, the minister was unable to announce new groundbreaking measures that would be backed by substantial funding, with the ability to respond to the crises that the country faces with urgency.

Instead, the minister mentioned adjustments throughout the system, with measures to enhance greater resource efficiency, and committed the government to greater policy certainty.

It appears as though the long-term strategy to spark economic growth and positive sentiment in South Africa again is to provide some relief to taxpayers, cutting of red tape for businesses, and addressing resource inefficiencies.

The harsh reality of this long term-strategy however, is that it is premised on the need to consolidate first, and to then address major developmental structural challenges.

In an effort to enable consumer demand, tax relief and incentives are to be used as a catalyst to rebuilding economic growth in South Africa, which brings positive news to certain parts of the population with economic agency, particularly the middle tier of income earners.

With Mboweni’s hands tied by the increasing cost of servicing debt, coupled with revenue shortfalls, Mboweni is attempting to create what is often termed “trickle-down” economics.

Increased demand is expected to stimulate transactions across the economy.

However, this is a strategy that has historically failed South Africa.

The benefits of increased demand have a history of being disproportionately captured by a small portion of the population, further deepening the crevices of inequality.

The unemployed and other groups who lack economic agency will find little to celebrate in tax relief.

Less red tape and more support for the Small, Medium and Micro Enterprises (SMMEs) environment may broaden equality, with potential opportunities for young entrepreneurs and informal traders.

Prospects like these place the country on a long-term path to inclusive and sustainable growth.

However, the historic disappointments of SMMEs in playing out their envisioned roles in boosting economic growth cannot be repeated.

Instead, the strategy should effectively ensure that all infant businesses receive the support they require, such as creating incubation networks that have the potential to grow small businesses.

Without reform to achieve a true equality of opportunities, the economically marginalised will continue to operate outside of the formal economy.

This means that the income tax base will remain at 2019’s level of 6.6% of the population.

An inclusive economy requires urgent attention to address education inequalities, spatial fragmentation and community development.

The most economically destitute portions of the population will see a marginal increase in the value of social grants.

An R80 increase for Old Age and Disability recipients, and a R20 increase for the Child Support Grant (CSG) will no doubt come as a temporary relief to recipients.

Although these proposed increases may be helpful, they are unlikely to substantially improve the recipients’ quality of life.

The CSG, at R445, remains below the food poverty line, and does not even cover the R583 a month required for an average basket of nutritional food recommended for a child aged between 10 to 13 years, as per the 2018 Food Price Barometer which tracks increases in price levels for food.

For the economically marginalised, who are faced with gloomy prospects for job creation and skills transfer, there is little possibility hidden in the Budget Speech for upward mobility.

Instead, measures seem to be favouring those who already have economic agency.

On a national level, the high debt servicing costs are translating to major losses for inequality and social cohesion within the country.

The R202.2 billion allocated to servicing national debt is not only a direct monetary loss to other programmes, but also a loss to future payoffs in human capital.

The unfortunate consequence of incurring unsustainable debt is that the community development budget for 2020 is only 3.3% larger than the debt-servicing costs for 2020.

These lost opportunities translate further into revenue losses for the government, who could instead be investing in its population to create a larger income tax base in the future.

When human development comes at the expense of servicing a debt burden that has snowballed at the hands of state enterprise mismanagement, the government has not only dimmed the prospects for current South Africans but also for future generations.

Where opportunities to invest in basic services and human development are lost, the long-term effects for a cohesive society can grow alarming.

This Budget Speech is fiscally prudent in the face of mounting debt repayments but does not bring any short-term assistance for the country’s most economically vulnerable.

The national budget brings relief to the middle class and perhaps predictability to investors, yet it lacks creative solutions to redress social and economic inequality, as the aggressive development agenda that is needed is required to be placed on hold.

This certainly was not a “quick-fix” Budget Speech, but rather one that reveals Treasury’s attempts to contain a decline in certain areas of the economy and stimulate growth in others.

In the medium run, social cohesion is unlikely to improve as economically vulnerable South Africans are forced to prepare themselves to emulate the resilience of Mboweni’s desert plant.

 Jaynisha Patel is a Project Officer leading the Inclusive Economies Project at the Institute for Justice and Reconciliation. She holds a Masters degree in Politics, Philosophy and Economics from the University of Cape Town.

Article first published by News24

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