Is Mboweni’s budget ‘saving’ poor SA right into a bigger hole?

Whose budget is it anyway? Money that would have gone towards essential services must now be redirected towards saving the country's poorly performing SOEs.


Every year, before and after the budget speech, we are bombarded with a plethora of analyses and expert opinions on what we can expect from the finance minister and the dire state of our economy.

The simple truth is that a lot of the language and jargon thrown around can be very alienating to many people. These conversations are about you, the taxpayer, and your money, yet very little is brought to your understanding.

As a consequence, the majority of South Africans are excluded from these conversations, and their participation or capacity of engagement in the budget process is limited.

Your money is used to make plans and is being discussed and allocated without you – which then begs the question: Whose budget is this anyway? Who is it meant to benefit?

In an attempt to break down some of the ‘budget talk’, let’s look at one of the phrases you may have come across: ‘the fiscal challenge’.

The word ‘fiscal’ just means money or finances. The word ‘revenue’ refers to the money coming into the economy and ‘expenditure’ is the money going out.

Simply put, when the government refers to ‘the fiscal challenge’, what they mean is that there is more money going out of our economy than there is coming in.

When this happens, it means there is a budget deficit or imali ayihlangani. In an attempt to address this, the 2020 budget proposes that government reduce the money it spends – this is what we call an austerity measure.

The government uses austerity measures to reduce the debt-to-GDP ratio. You might be wondering what this ratio is: the debt-to-GDP ratio compares what the country owes (debt) against what the country is able to produce (GDP).

So this ratio is used to calculate the country’s ability to pay back its debt, and in some cases it can be used to determine how long it will take to pay this debt. The higher the ratio is, the more likely it is that the country will default on debt repayments.

Extensive research has been conducted internationally and by organisations such as the Institute for Economic Justice which shows the effects of austerity. It has been proven that instead of improving the state of the economy, austerity just makes it worse.

In fact, we can think of it as a vicious cycle: the less money the government spends, the less money there is in the economy and this means less economic and GDP growth, which means that the debt-to-GDP ratio gets larger and the economy plunges even deeper, which is bad news.

It was, however, refreshing to note that government realised increasing taxes was not the best way to raise revenue.

According to government’s spending plan to address the fiscal challenge, reductions in expenditure will “improve the composition of expenditure, but will not stabilise debt”.

This is especially good because many analysts predicted there would be a VAT increase, and there wasn’t.

It is understandable how you might think that government reducing its spending is a great thing. After all, logic dictates that the more money you don’t spend means the more money you will have remaining.

As much as this may ring true for your household budget, reducing national spending leads to a downward spiral in the economy.

What do I mean by this?

Well, let’s look at household budgeting: if you decide you need to buy a new toaster for R200 this month, but you later discover that your old toaster actually works just fine and you no longer need to buy the new one, you will end up having R200 more money than you had thought because what you don’t spend becomes your saving.

The country’s budget is different though: when there is an increase in spending, the economy is boosted.

When government decides to ‘save’ money, it means there is less money being circulated in the economy, making things stagnant and potentially increasing poor economic performance, while also reducing important investments in things such as infrastructure and health.

Just so we are clear, when government decides to reduce the money it allocates to a certain sector, it means there is less money for that sector to function.

Take for instance the allocations to the human settlements sector, where the 2020 budget shows government is reducing, or ‘saving’, R14.6 billion. This implies there will be fewer subsidy houses, and that there is considerably less money being allocated to the municipal infrastructure grant – this is where money for water and electricity connections comes from. Less money to this grant means more (poor) households are left without proper sanitation.

The money that is allocated to improve the infrastructure of our schools has been cut by R5.2 billion and the reductions to health amount to R3.9 billion.

What this means is that infrastructure to our schools and hospitals will continue to deteriorate and more of our learners will face the risk of dying in pit latrines. It means that our public hospitals will continue to suffer the brunt of overcrowding and lack resources.

So where does all of this ‘saved’ money go?

According to government’s spending plans, the bulk of these reductions are to be reallocated to saving state-owned entities such as our power utility, Eskom.

So, when government speaks of ‘reprioritising funds towards critical priorities’, they don’t mean areas such as education or health. They are also not speaking about housing or human settlements.

Budget cuts to these sectors are in contradiction to the realisation of socioeconomic rights.

What we need to understand is that when government reduces expenditure of this nature, it always disproportionately disadvantages the lower income households and the majority of South Africans. So instead of just being concerned with the adjustments to social grants, we should be able to have more meaningful engagements about our budget and our economy beyond just “inyuke ngamalini indodla?” – How much has the grant increased?

Lelona Mxesibe.

 

 

 

 

 

 

 

 

Mxesibe is researcher and budget analyst at the Studies in Poverty and Inequality Institute in Johannesburg.

For more news your way, download The Citizen’s app for iOS and Android.

Read more on these topics

Eskom