NEW ECONOMY

Fiscal responses must include human rights

In the fifth part of this month’s New Frame, New Economy forum, public finance specialist Zukiswa Kota explains why we need to bridge the gap between the rights of ordinary people and budgetary constraints.

Much has been written about the troublesome socioeconomic climate and the difficult decisions the government must make to preserve lives and sustain development in the face of Covid-19. The fiscal and economic policy debate has been particularly heated and, importantly, seems to have brought more voices into the ring, alongside the usual economist ideologues.

The pandemic has highlighted the massive effect fiscal policies can have on our incomes and wellbeing. These decisions have real and sometimes long-lasting implications for whether inequality and poverty are deepened or progressively tackled. These decisions are also significant determinants of whether the democratic project is suffocated or reinvigorated.

Michael Sachs points out that South Africa is faced with a “real dilemma”, rather than mere friction between what he calls “constructed ideological tropes”. Agreed. The situation is not unlike deckhands rearranging furniture on a capsizing passenger ship after hitting the Covid-19 iceberg. Even though a few life vests and lifeboats have been thrown to drowning passengers and, thankfully, the ship has not yet sunk, there has been a devastating impact, which is why there is much work to be done to shift from emergency to safety. 

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Sachs asserts that there is no way out of South Africa’s fiscal conundrum without ensuring “social solidarity and real compromise on wages and rents”. But he stops short of outlining what kind of leadership and social organisation would be needed to take us out of troubled waters.

In part, it requires decisive leadership to move the country beyond the rhetoric of “inclusion” and abstract ideas of “social compacts” towards showing this in practice. At the centre must be people, and the enjoyment and protection of social, economic and environmental rights, not narrowly defined economic growth.

Covid-19 has sounded a universal call for paradigm shifts in public finance. There is a need to develop frameworks that draw on international human rights law to assess the government’s use of resources for the realisation of economic and social rights through the budget.

Platforms that should centre human rights

Statistics South Africa reported on 23 February that the official unemployment level is at a staggering 7.2 million people (32.5%). South Africa’s devastating levels of inequality and poverty are well documented. That the gendered and racialised nature of wealth, market labour, health and other measures of inequality persist is significant. There are no clearer indicators that fiscal policies are failing to meet human rights obligations.

What kind of structures would enable a start to redefining fiscal policy to prioritise human rights? There are two examples of existing platforms, which, if reignited, are worth considering.

The first is the National Economic Development and Labour Council (Nedlac), which is ostensibly representative and aims to find solutions to the country’s economic, labour and development problems. Nedlac’s constitution compels it to promote “economic growth, increased participation in decision-making and social equity”. The council, though, has faced criticism over the years for being a closed, exclusive space. The country’s second-largest labour federation, the South African Federation of Trade Unions, for instance, still does not have a seat at the table.

The second is the Open Government Partnership (OGP) through which government and civic actors co-create plans to address specific social and economic problems. The OGP adheres to the Global Initiative on Fiscal Transparency’s principles of public participation in fiscal policy, including “proportionality”, which ensures the mechanisms of public engagement are proportionate to the scale and impact of the issue or policy concerned. A decision to increase value-added tax, for instance, should never be implemented without fully explaining the consequences for, and getting input from, the communities it would affect.

Budget cuts are more than mere policy

We must foreground the fact that the shock of the pandemic cannot be likened to a regular economic cycle, as Sachs outlines. But he puts it too mildly when he says the impact of prevarication on social support by the South African government was “unnecessary”. It had brutal consequences for many households. And it would seem policy makers have not learned the lesson. 

The most recent National Income Dynamics Study – Coronavirus Rapid Mobile Survey (Nids-Cram) highlights regressions in previous improvements in adult and child hunger, despite the easing of lockdown restrictions. The researchers suggest this may be because top-ups to some social grants were phased out in November.

There have been other policy choices since the beginning of the pandemic that were so inexplicable as to be cruel – the Department of Basic Education holding back funds intended to feed vulnerable learners, for instance. This during a lockdown when an increasing number of South African households were facing hunger.

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While there is no escaping the centrality of Covid-19 in current fiscal decision-making, the government’s choices to cut public spending during “normal” times has had a severe effect on human rights, access to health and education being among them. As Sachs indicates, budgets for services such as basic education and policing increase well below inflation between 2019 and 2023. This is despite rising unemployment and population growth, which will increase the number of South Africans needing these services.

Public expenditure cuts are more than mere policy. They come amid ailing public health services, public education, and community safety and policing programmes. These decisions – made by the executive and approved by Parliament – tell us all we need to know about national priorities. The impact on people most dependent on these services is incalculable, and makes ongoing ideological debates and economists’ bunfights seem petty.

Budgeting for rights

To budget meaningfully for socioeconomic rights in an ever-tightening fiscal context, we will need to radically transform public institutions, professionalise public administration and properly fund the South African Revenue Service, along with anti-corruption agencies such as the National Prosecuting Authority. Revelations at the commission on state capture regarding the accountability of Parliament and the legislature suggest that greater emphasis should be placed on strengthening oversight throughout the fiscal cycle to tackle corruption and elite capture while safeguarding revenues.

Who should be part of the accountability chain when policy fails the most vulnerable so severely? Parliament, the legislature and Chapter 9 institutions are simply not doing enough to ensure corrective action where the government is failing to meet its basic constitutional obligations in the raising, allocation, spending and auditing of public funds. The time has come to bridge the yawning chasm between human rights and budgetary decisions. As long as current levels of unemployment, hunger and poverty persist, fiscal policy fails the people it is intended to support.

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These core tenets must be meaningfully integrated into decision and policy-making about state resources and programmes. This includes legislating for truly participatory spaces that are directly aligned with public finance, policy formulation and oversight cycles, putting the people back into Parliament. Before introducing any measures to address deficit and debt issues, the government must explain its policy choices. This must include any anticipated impact on the rights of impoverished and vulnerable households in particular. Consultative hearings must be established in which women, young people and those who live in rural areas engage directly with treasuries, divisional departments and members of Parliament before decisions are made.

In the interim, while Sachs may be right about the need for difficult compromises, they cannot be made at the expense of people’s rights. Proposals have been made for specific policy choices such as a basic income grant, a living wage, universal social protection and efforts to reduce inequality in the labour market. Increasing sin taxes, taxing accumulated wealth, stricter tax-evasion laws, fixing inefficient state-owned entities and curbing illicit financial flows are some ways to create the “fiscal space” for social spending.

Emphasis must shift to decision-making processes that are participatory and genuinely inclusive. And so, where Sachs has thrown down the gauntlet, we must begin with interrogating the efficacy of existing fiscal policy. This reaches beyond the ambit of the National Treasury alone and must, if we are serious about participatory democracy, extend to the people it will affect most and include legislative and audit institutions, Nedlac as well the unions outside of Nedlac, other kinds of popular organisations and unorganised people. We must bridge the gap between rhetoric and reality and co-create a real social compact.

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