Think piece: The poor will bear the brunt of austerity

Every year, 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 truth is, a lot of the language and jargon thrown around is alienating. These conversations are about you and your money, yet very little is brought to your understanding – so whose budget is it?

One of the phrases you may have come across is “the fiscal challenge”.

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

When government refers to “the fiscal challenge”, it means there is more money going out than coming in. This means there is a budget deficit or imali ayihlangani.

The 2020 budget proposes the government reduces the money it spends – this is what we call an austerity measure.

Government uses austerity measures to lower the debt-to-gross domestic product (GDP) ratio: compares what the country owes (debt) against what the country is able to produce (GDP).

This ratio is used to calculate the country’s ability to pay back its debt. The higher the ratio is, the more likely the country will default in repayments.

It has been proven that instead of improving the state of the economy, austerity makes it worse: the less money the government spends, the less there is in the economy and this means less economic and GDP growth, which means that the debt-to-GDP ratio gets larger.

It was refreshing to note the government realises increasing taxes is not the best way to raise revenue.

You might think the government reducing its spending is a great thing. After all, logic dictates the more money you don’t spend means the more money remaining.

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

How? Well, in a household, if you decide to buy a toaster for R200, but discover your old toaster works just fine and you no longer need the new one, you “save” R200.

What you don’t spend becomes your saving.

The country’s budget is different. When there is an increase in spending, the economy is stimulated. When the government decides to save, less money being circulated makes things stagnant and potentially increases poor economic performance, while also reducing important investments in things like infrastructure and health.

The 2020 budget shows government is “saving” R14.6 billion in allocations to the human settlement sector. This implies there will be fewer subsidy houses and less money being allocated to the municipal infrastructure grant. Less money to this grant means more (poor) households are left without proper sanitation.

The money 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.

According to the government’s spending plans, the “money saved” is to be reallocated to state-owned entities.

Lelona Mxesibe.

• Lelona Mxesibe is researcher and budget analyst at the Studies in Poverty and Inequality Institute

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