Six weeks ago, at President Cyril Ramaphosa’s engagement with the media and academics, author and columnist Justice Malala said to me: “You must be happy that the president says he will implement a basic income grant (BIG).”
I replied that it is one thing for the president to say he wants to implement a BIG. But the Treasury could cancel the plan. The Treasury cancelled a R400bn infrastructure fund the president launched in September 2018.
Five years later, it does not have a cent. The Treasury also cancelled a R500bn stimulus package the president announced in April 2020.
A few days later Ramaphosa convened a summit at the Spier wine estate in Stellenbosch to discuss the R350 monthly social relief of distress grant, which is due to end in March 2024. It is not clear why there was a need for a summit to discuss an item that accounts for less than 2% of the budget.
Also, the 2023 budget has an unallocated reserve of R80bn, which can fund the continuation of the grant for another two years. It is now clear to me that the Treasury went to Spier with a political agenda to create a manufactured crisis to scare Ramaphosa into dropping his plans to implement a BIG.
In a policy brief, the Institute for Economic Justice (IEJ) says on the reported fiscal crisis that “It should be stated unequivocally that this is being exaggerated for political purposes.” The IEJ rejects the false dichotomy that SA only has two choices: to cut spending or face a fiscal crisis. It says SA has a GDP growth problem not a debt problem.
Implementing the deepest budget cuts since 1994 will create a fiscal crisis by reducing GDP and increasing the debt ratio. It cited research showing that a fiscal contraction larger than 1.5% of GDP generates a negative effect of more than 3% of GDP. It says the IMF has found that “on average, fiscal consolidations do not reduce debt to GDP ratios”.
Every budget misses its revenue and spending targets, and 2% either way is regarded as normal internationally, according to the parliamentary budget office. The IEJ says the revenue shortfall for 2023/24 could be R52.4bn. This shortfall is not high and is within historic norms. Also, I should add the government has contributed to the revenue shortfall with its genius policies of implementing austerity and interest rate hikes while the country is having the worst power blackouts in history.
The think-tank says the expenditure overrun could be R67.9bn-R105.8bn. Like the revenue shortfall, the projected overrun is not unprecedented. Again, the Treasury is complicit in creating this so-called crisis and the majority of the overrun was a predictable outcome of poor planning.
It was irresponsible to budget for a 1.6% public sector wage increase. Excluding foreseeable expenses and then raising concerns about overruns was “deliberately manufacturing your own crisis” to force budget cuts and stop programmes the Treasury opposes.
The IEJ says SA’s debt ratio of 71.4% of GDP in 2022/23 and projected deficit of 6.3% of GDP are not high when benchmarked against emerging market peers.
But the interest on the debt is higher than its peers because of the lack of a growth strategy and a decision to raise funding at the expensive “ultra-long end” of the yield curve.
The IEJ makes recommendations to address the budget mismatch and reduce the government’s cost of borrowing by shifting to cheaper medium-term debt.
When he delivers his medium-term budget policy statement on November 1, finance minister Enoch Godongwana will have two choices.
He can take SA on an economic suicide mission that involves unprecedented austerity measures that will cause a debt crisis and social unrest. Or he can take SA on a path to prosperity and implement expansionary macroeconomic policies that grow the economy and reduce the cost of government debt.
• Gqubule is research associate at the Social Policy Initiative.
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