I am still traumatised a week after I read the Treasury’s presentation to President Cyril Ramaphosa’s summit on the social relief of distress (SRD) grant at Spier wine estate in the Western Cape.
The Treasury has crossed a line with dangerous proposals that could collapse the economy and result in a social uprising. Three decades ago Nelson Mandela averted a civil war after the murder of Chris Hani. Today we do not have the leaders who can stop this madness and decide that we cannot continue like this.
A national budget does not work like a household budget. According to Keynesian economics 101, austerity reduces GDP growth and results in a higher debt ratio. Permanent austerity — not overspending — is the reason for the rising debt ratio. When the government increased spending on its people and infrastructure from 2003 to 2008, the economy grew 4.5% a year and the debt ratio declined. From 2009 to 2022 the government reduced spending. The economy grew 1.5% a year, and the debt ratio increased. Cutting spending to reduce a debt ratio is a daft idea that can never work.
Higher GDP growth is the sustainable way to reduce a country’s debt ratio. Since the public sector — broadly defined to include state-owned enterprises — accounts for maybe 40% of GDP, grade 10 mathematics and a back-of-the-envelope calculation should make it obvious that the government cannot cut spending and expect GDP to grow. As Nobel laureate Amartya Sen said: “Even if we want to reduce public debt quickly, austerity is not a particularly effective way of achieving this. For that, we need economic growth, and austerity, as Keynes noted, is essentially antigrowth.”
The Treasury’s proposed fiscal rule is an assault on democracy that will create a law that makes austerity compulsory — without parliamentary debates — if the government does not meet arbitrary primary budget or debt targets. With a fiscal rule and an inflation target, the government will not have the macroeconomic policy tools to increase GDP growth and confront the unemployment crisis.
The Treasury has also proposed the most extreme budget cuts since 1994. The proposals are dishonest and designed to create panic in society. Ever since former finance minister Malusi Gigaba increased VAT in the 2018 budget the Treasury has written in every subsequent Budget Review that the hike did not work. Now it suddenly believes a VAT increase can fund the continuation of the SRD.
The 2023 budget was not credible. Every year for the past four years the Treasury has pencilled in a 1.5% increase in the public sector wage bill when it knows that this will not happen. It has been using the budget as a negotiating tool in wage talks. Now it acts surprised that it will not meet its elusive primary budget surplus. The 2023 medium-term expenditure framework had no budget for the continuation of the SRD grant and Presidential Employment Stimulus, when the Treasury knows they cannot be stopped two months before a national election.
Zero budget assumptions were then used to create panic at Spier, when the existing SRD spending should have been the baseline to assess options. The modelling of SRD costs was wrong and looked like it had been written by an intern. For example, one scenario shows how to gradually increase the SRD grant to be closer to a food poverty line of R700 a month by 2030/31.
However, the 2023 food poverty line is R760, higher than the Treasury’s 2030 target. It reaches R1,069 by 2030 if one escalates it by inflation of 5% a year. The biggest mistake by the government after 1994 was to make the Treasury an economic policy department. That power must now be taken away from it.
• Gqubule is research associate at the Social Policy Initiative.
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