Budget is the real deal for business and the rich

Social spending is being reduced in South Africa as a policy choice and not as a result of the weak economy and the negative effects of Covid-19.

This year’s budget may be the most important in at least a decade. It confirms an important shift in the government’s priorities and seems to tear up much of the social bargain that has enabled the country to muddle through since 1994.

No one who has been following economic policy thinking in the government expected this year’s budget to place poverty and inequality at the centre – or even maintain spending at previous levels. Covid-19 has damaged an already weak economy, eating further into the money the government can raise from taxes. Controls on spending have been central to government thinking for two decades, and two related issues suggested that this would be a tough budget for the majority.

First, drumming up private investment is at the core of President Cyril Ramaphosa’s recovery strategy, and the government believes that investors are attracted by spending cuts. Second, it has been clear for a while that Minister of Finance Tito Mboweni, often seen in the media as a maverick whose positions on the economy are out of kilter with ANC thinking, is winning the argument and shaping government economic thinking. The most obvious evidence of this was the government’s refusal to grant civil servants the pay increase scheduled for last year. 

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Mboweni has made it clear that his priorities are to reduce government debt and stimulate private investment. The reduced spending and tax breaks for companies in this year’s budget were, therefore, expected. It also seemed likely that the need to pay for Covid-19 vaccines would further limit spending on other social needs. 

But this is not the first year the government has faced pressure on its funds. In previous years, fancy footwork has been used to balance these realities with the need to address huge economic inequalities. Successive budget speeches – including Mboweni’s own – have stressed the need for social solidarity and managed to maintain social spending largely intact. 

This obviously does not mean that the spending was enough or that the money was always spent on what poor people needed. But it did mean that the government recognised the need to at least offer the majority what they received in the past. This is why it was always inaccurate to label the government “neoliberal”, which means, of course, that it put markets before people. Neoliberal governments do not pay out 18 million social grants each month or supply free medicines to millions living with HIV and Aids.   

Ignoring the people

The latest budget has changed this in important ways. First, there was no talk in the budget speech of social solidarity, except for brief condolences at the beginning for people who have lost their lives to Covid-19. Mboweni ignored the realities in which most South Africans live, as summed up by a caller to a radio station who said the minister was “speaking to business, not to us”. The only nod to the world outside the boardroom was his message to others in the “democratic movement” (read the Congress of South African Trade Unions, SACP and some economists) that this was not an austerity budget.

Why care what the minister says rather than what the budget does? Because it tells us what his priorities are and which audiences he cares about. Since his view is the government’s view, it sends the same message about its focus of attention. 

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While the speech may, to a degree, express Mboweni’s personality, the government does not seem uncomfortable with it (we would be reading planted leaks from politicians if it was). And though the minister’s supporters claim that the budget is filled with social programmes, such as a new grant for upgrading shack settlements, it clearly does signal a government retreat from social commitments.

The day after the budget, Mboweni, who is clearly irked by the “austerity” charge, declared that 56% of the budget was earmarked for social spending. He did not mention that under Trevor Manuel, who was often slapped with the neoliberal tag, it was 67%. So social spending is reducing not only because the government has less money, but because it gives less of what it has to social needs. 

That is a policy choice, not a product of circumstances it cannot control. Some of the cutbacks, such as those in higher education, seem remarkably short-sighted even for a government that puts its faith in markets, because it may reduce the numbers of skilled people available to the economy.

Social spending cuts

But the most revealing aspect of all is that this was the first time in more than a decade that social grants will be cut in real terms, as the increases are lower than the inflation rate. Previous “hard times” budgets always found a way to ensure that the money available for people who depend on grants did not decrease. This one does not. 

Also, more importantly, this is not a “once-off” response to what Covid-19 has done to government finances or because the R350 special grant has been extended. The economist Ayabonga Cawe points out that annual growth in spending on social security is slated to decline by 2.2%, on average, over the next three years. 

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There are also cuts in grants to non-profit organisations which provide welfare services, in effect, on behalf of the government. The people who need support the most are paying the price for the government’s attempts to woo private investment. 

While the government and its allies would no doubt argue that we all benefit if the investment begins to flow in, it is hardly sure that it will. And even if it does, this does not explain why others better able to bear the shock were not asked to pay.

Outside the deal

The obvious reason is that people living in poverty are the least able to pressure the government. But if the government does assume that they won’t do anything about this, it could be in for a shock. Experience around the world shows that people rebel not when they want what others have, but when the little they have is taken from them. 

Research also shows that social grants are why many people vote for the ANC. Tampering with grants could prompt rebellion or drain support from the governing party. This is unlikely now, since the drop in real value is limited, but the more this continues, the more likely it becomes.

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The former deputy minister of finance, Mcebisi Jonas, argues in a recent book that post-1994 South Africa has been held together by a bargain that has offered business, the affluent, trade union members and people living in poverty a reason to not upend the deal. He got some of the details wrong, but his insight is valid. 

The Mboweni agenda is now busily tearing up much of that bargain. Key to what labour got is collective bargaining and what poor people got is social grants. For public sector workers, bargaining means little if the other side simply dumps the bargain when things change. For poor people, grants are literally now slated to lose their value year by year.

That leaves only business and the affluent inside the deal. It is questionable how much use it will be to them if labour and the poor continue to lose their stakes in the bargain and the stability it established.     

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