Put the people first, fight the cost-of-living crisis.

1 October 2023

Against Austerity

Neoliberal austerity, which we unequivocally reject, is an utterly inappropriate response to economic development problems, just as it was in analogous scenarios in recent memory. We have steadfastly cautioned against the vicious cycle that austerity, also implemented under the notion of “fiscal consolidation”, unleashes, especially in economic stagnation.

Our 17th National Congress in July 2022 laid out our perspective with unwavering determination. Austerity should not be confused with trimming perks for senior officials, or ensuring greater value for money, by cutting rent-seeking or tackling corruption. Such measures should all be part of normal, prudent public finance management, which we support. We do not support austerity, which involves, among others,

(1)   prioritising, over all else, preordained “fiscal anchors”, ratios deemed by the neoliberal playbook to be universally applicable everywhere and under all circumstances; and

(2)   enforcing such ratios by cutting government expenditure, even to the extent of cutting development and redistributive programmes and withdrawing from any real economic stimulus.

Experience in various jurisdictions has shown that austerity often unleashes a vicious cycle. Austerity promotes stagnation. This, in turn, reduces revenue collection. It also leads to budget shortfalls. More often than not, those promoting austerity are intransigent. They react to their austerity-generated revenue collection reduction and budget shortfall with more austerity. The whole scenario leads to prolonged stagnation, and in worse cases, a downward economic spiral.

An effective economic and social development recovery strategy, particularly one geared towards inclusivity, large-scale employment creation, and radical poverty reduction, can furnish the fiscus with ample resources. This should be the preferred avenue for achieving fiscal sustainability.

In the past, we called for decisive action to tackle irregular, fruitless and wasteful expenditure of public finances. As we reiterate this stance, we want to emphasise unequivocally: “We stand firm against austerity.” Austerity has detrimental effects on structural transformation and economic recovery, not to mention its impact on pivotal development and pro-poor programmes.

In May 2020, our Alliance adopted a framework in response to the COVID-19 pandemic. Together in writing, we committed ourselves to:

Continually implement anti-poverty programmes, using the redistributive mechanism of the fiscus to provide a safety net for the poor.

Direct expenditure towards and ensure stimulus measures that contribute to increased investment in the economy.

Radically transform the structure of our economy, to ensure a post-COVID pandemic economic reconstruction and development through re-industrialisation, among others, involving manufacturing expansion and diversification.

Prioritise developing our country’s total productive forces as rapidly as possible, to sustain a post-COVID pandemic reconstruction and development and drive an inclusive growth path, one that will bring down unemployment radically, through high-impact employment creation and decent work state interventions, and systematically eradicate poverty and eliminate inequality.

Advance an action-oriented approach to post-COVID pandemic reconstruction and growth path to speed up work towards a new, inclusive and just economy in South Africa.

The National Treasury must demonstrably observe these principles strictly.

We denounce the notion, by the National Treasury in its letter dated 31 August 2023, that the last public service wage settlement has caused a fiscal crisis.

The National Treasury, directly through the Minister of Finance, actively took part in the public service bargaining process. This culminated in the last public service bargaining settlement, which the government must honour.

Let us recall. On 28 February 2022, the Constitutional Court, after considerable prodding from the National Treasury in its submissions, ruled that the state could enter into a collective agreement only if certain conditions were met. These conditions included a realistic calculation of costs and a commitment to funding the agreement.

The National Treasury was aware that not budgeting for the public servants’ salary increases would not absolve the government of its obligation to honour the bargaining settlement. It is unfathomable for the National Treasury or any person to assign blame to the workers or those not responsible for budgeting the settlement.

The National Treasury’s approach, which compels departments and provinces to cut their already adopted budgets to foot the bill, could as well be legally questionable. It may be subject to legal challenge.

Our proposal is straightforward: The National Treasury must find new money to fund the public service bargaining wage settlement, as opposed to imposing austerity measures on national departments, provinces, and affected public entities.

Cutting budgets for established priorities, or halting their implementation, especially but not in areas like infrastructure and personnel recruitment, would have a detrimental impact on growth prospects and service delivery.

Similarly, it makes little sense to treat the impact of load shedding on growth as if it was unexpected. The fact is that there was load shedding when the National Treasury prepared the 2023/2024 financial year budget and presented it to Parliament in February this year. Given the tools it commands, the National Treasury could easily model the impact of load shedding on growth.

After all, load shedding results from austerity and other neoliberal policy failures, besides governance decay, state capture, and other forms of corruption.

How can we forget? In December 1998, the government adopted a White Paper on Energy. It preferred the neoliberal energy policy regime and its notion of energy security. This involved a shift to private power producers, instead of ramping public investment into new power generation capacity to build electricity self-sufficiency and ensure national energy security.

Meanwhile, Eskom’s fleet of power stations aged. The public electricity utility, which was corporatised and forced to act like privately owned business, lacked adequate support to ensure maintenance to original equipment manufacturer specifications. Starting in 2007, consequently, South Africa experienced power shortages, culminating in load shedding.

The old fleet of Eskom power stations failed frequently, and load shedding worsened. After ignoring a warning that South Africa would experience power shortages within a decade from 1998, the government introduced the Medupi and Kusile power stations belatedly and hurriedly. Poor designs, shoddy work, perpetually missing completion deadlines, and corruption added to the prolonged electricity supply under-capacity crisis.

Instead of using fiscal policy as a growth instrument, the National Treasury embarked on a negative average growth path in the medium-term expenditure framework on economic development and industrialisation. In the absence of a review, this austere approach to economic development and industrialisation will last until the 2025/2026 financial year. This neoliberal path will not help turn the tide against stagnation and revenue under-collections and shortfalls.

Through the Red October Campaign 2023, we call for the following, mostly revenue generation measures.

The South African Reserve Bank’s Gold and Foreign Exchange Contingency Reserve Account: If the National Treasury insists that we are in a fiscal crisis, it must prove the claim – which at this moment is unconvincing. Here is a convincing intervention to prove the claim. A completely costless means of closing the entire budget mismatch is drawing down on the R459 billion owed to the South African government in the Reserve Bank’s Gold and Foreign Exchange Contingency Reserve Account. If the funds are reserved for storms and we have a fiscal crisis right now, then this is a storm.

Tax breaks: The fiscus provides income support to the highest income earning categories through various tax breaks. These may translate into an estimated R305 billion in 2023. The latest share of this is retirement fund benefits, R232 billion, and medical aid rebates, R32 billion. Those earning above R500,000 will benefit from an estimated tune of R144 billion, while those earning above R750,000 will benefit from an estimated tune R83 billion. These require a review. In addition, the government should remove tax brackets for high income earners and select tax breaks for corporates. South Africa is a highly unequal society: a greater amount of tax at the top is imperative under the circumstances.

Taxing income from wealth and trading financial assets: Aligning tax paid on large pools of inherent wealth to the upper tax brackets could yield an approximately R1.9 billion, modestly increasing the Securities Transaction Tax rate brings in R1.41 billion. Instead of lowering it but broadening the base to a wider financial transaction tax could raise R41 billion, and a currency transaction tax could raise R3.75 billion.

A wealth tax: A wealth tax on net assets is another major option. Researchers from the Southern Centre for Inequality Studies at the University of the Witwatersrand recently made a strong case for implementing a progressive wealth tax. According to their estimation, such a tax could raise between R70 billion and R160 billion in additional revenue.

Corporate income tax: The National Treasury cut corporate income tax by 1 per cent from 28 per cent to 27 per cent with effect for years of assessment ending on or after 31 March 2023. This represents a national revenue reduction. In addition, the corporate income tax rate cut was not conditional upon additional investment by its beneficiaries to protect state revenue from a loss. Rather, it was a blanket, neoliberal ideological cut. To raise national revenue, it should be reversed.

The National Treasury must embark on targeted debt renegotiation and interest rate management, instead of continuing to allow the financial sector to set the interest rate agenda. Finance capital makes profits from interest rates. To allow it to set the interest rate agenda is to impose high debt service costs on the state.

South Africa has strong access to rand-denominated government borrowing and can use this to attend to the expected budget shortfall. Innovatively using monetary policy to support fiscal policy and improving co-ordination between the two, instead of viewing fiscal policy in isolation from monetary policy, can contribute to the desired outcomes. In addition, a review of the law that prevents the Reserve Bank from buying National Treasury bonds directly is an option as well. This must be considered going forward.  

Prescribed investment: Off budget, we need to be firmer in efforts to steer part of existing funds towards developmental priorities, particularly when seeking to do this via building “partnerships” with profit-seeking institutions is clearly not delivering adequate results. Prescribed assets, community reinvestment type regulations and various levies all need to be part of the policy toolbox.

Clamping down on illicit financial flows: An ongoing problem for the fiscus is tax evasion, among others. The capacity of the South African Revenue Services and specialised law enforcement should be enhanced. Instead of being curtailed through austerity, it should be boosted through additional funding. A study undertaken under the so-called “African Growth Initiative at Brookings” lists South Africa as the top emitter of illicit financial flows in Africa. It is estimated South Africa emitted approximately US$442 billion in illicit financial flows from 1980 to 2018. In the book titled Trade Misinvoicing in Primary Commodities in Developing Countries: The Cases of Chile, Côte d’Ivoire, Nigeria, South Africa, and Zambia, published in 2016, the United Nations Conference on Trade and Development particularly singled out the extractive industry as being more prone to illicit financial flows. In addition, misinvoicing is identified by contributions to the literature as a significant driver of illicit financial flows. Dealing decisively with illicit financial flows will raise national revenue.

Mined minerals verification: The state must strengthen measures to verify the amount and value of minerals that every mine house claims to have extracted. Minerals under-declarations could be part of illicit financial flows by unscrupulous mining houses. In the coming period, the SACP will discuss additional measures to clamp down on mineral under-declaration.

Review of the mineral royalties’ regime: According to our law, the mineral resources of our country belong to the people as a whole. This must find profound expression in the mineral royalties’ framework. The surplus-value extracted by mining houses, which they heap up as profits, their private property, is a money or value form of our minerals. It is problematic to usurp the ownership of our minerals away from the people as a whole, including through that exploitative mechanism. We need an equitable mineral royalties’ framework. Royalties can’t be an insignificant share vis-à-vis profits.

Resource rent/windfall tax: The recent commodities boom shows the importance of ensuring that the fiscus sufficiently benefits from inflated commodity prices. The most appropriate vehicle for this is a resource rent tax. A potential tax intake of R38 billion could be generated from a resource rent tax rate of 25 per cent. During the recent boom, the gains would likely have been larger.

The SACP is strongly opposed to an increase in VAT.

A developmental monetary policy and financial sector transformation  

The Reserve Bank hiked interest rates ten times since November 2021. The hikes added 475 basis points to the repurchase rate, which stands at 8.25 per cent. But this is the rate at which the Reserve Bank lends the commercial banks.

The commercial banks, which also lend depositors’ funds, charge most people the prime interest rate plus on home, vehicle, other household and personal loans. Now the prime lending rate stands at 11.75 per cent.

Interest rates are part of the rising cost-of-living driver. The Reserve Bank has forced millions of families to direct increased household spending towards interest rates, away from essential needs. Every time the Reserve Bank increased interest rates, it also increased household debt without those affected taking additional loans.

The commercial banking oligopolies, which serve as the Reserve Bank’s monetary policy transmission structure, force the majority of families to repay a single home loan with an amount that can buy at least two homes. These financial parasites charge prime plus compound interest rate, sentencing their financially exploited victims 20 years or more in debt repayment.

Today, we call on South Africans. Through united action.

Let us make sure the Reserve Bank support large-scale employment creation. It must prioritise industrialisation. This must be part of its mandate and accountability, which is possible through a long-term moderate and dual interest rate framework.

Let us fight for overhaul transformation of the financial sector.

We need a financial sector that serves the people, as opposed to financial exploitation and profit-driven interests.

A transformed financial sector will include a thriving developmental state banking sector and prosperous co-operative banks controlled by workers and communities.

The African Bank failed in private hands. It took the republic’s central bank intervention to turn it around. This led to the Reserve Bank gaining an equity stake. In response, the SACP said the Reserve Bank’s stake must be converted into a state-owned equity on behalf of the people as a whole. Those in charge at the National Treasury or the Reserve Bank, or at both, do not want. Instead of the people as a whole, they may be busy looking for a handful of black individuals to give that equity. This would amount to using public power and funds to serve private profit-driven interests at the expense of the people as a whole. We reject that. Together, let us organise to wage the struggle for the establishment of a developmental state banking sector.  

In recent weeks, the President signed the Bill separating the Post Bank from the SA Post Office. Our resolute aspiration is to witness the Post Bank ascend to the status of a fully-fledged, adequately equipped state bank, a strategic bastion in our mission to build a thriving developmental state banking sector.

The crisis at the SA Post Office and Post Bank is a regressive force plaguing South Africa. The abysmal failure to dispense social grants punctually last month, coupled with the intense strife between the communications and digital technologies minister and the Post Bank board, is a major cause of concern for us and most South Africans.

In mid-September, five resolute members of the Post Bank’s board valiantly resigned, among others citing severe, hostile and undermining treatment. This egregious state of affairs demands nothing less than an unyielding independent investigation, one that digs deep into the very core of this conflict’s origins.

We expect nothing but a turnaround.

Food poverty, an indicator of the cost-of-living crisis.

Food poverty is one indicator of the cost-of-living crisis afflicting millions of South Africans. We call on our people, on the workers and poor, both in rural and metropolitan areas. Let us unite, forge a popular left front, and wage a relentless struggle for decisive action to vanquish the cost-of-living crisis that is tormenting millions of South Africans.

A damning 2021 report from Statistics South Africa, drawing from the General Household Survey, revealed the grim reality of insufficient access to safe and nutritious food for millions of people, all hailing from the working-class and impoverished backgrounds.

The repercussions of this food crisis are both dire and far-reaching. In 2021, a staggering 2.6 million households grappled with inadequate food access, while 1.1 million households endured severe food shortages. This dire situation has afflicted an astonishing 18.5 million people, including vulnerable young children aged five or under, especially within African and other black households, which typically comprise an average of five members.

Children robbed of proper nutrition suffer dire consequences, from acute malnutrition to stunting, which detrimentally impacts their physical and cognitive development. We must acknowledge that this nutritional deficiency significantly contributes to the educational hurdles faced by many of our learners in schools, hindering their ability to comprehend and learn.

Although urban areas bear the brunt of food poverty, we must not disregard the intricate links between urban and rural areas. The enduring legacies of colonial and apartheid-era capitalist rural underdevelopment continue to drive rural inhabitants towards urban centres in search of opportunities.

Social safety net

Today, we want to reiterate our call for the government to transform the Social Relief of Distress Grant into a foundation for advancing towards a universal basic income grant. Together with protecting the real value of social grants, ensuring that they keep pace with inflation, a universal basic income grant will go a long way in helping millions of South Africans to cope with the rising cost of living – which the government should slow down and roll back.

National Health Insurance

We reiterate our call for a more decisive advance to ensure full implementation of the National Health Insurance. Austerity has contributed in no small measure to the delay the advance to the NHI has experienced. We must not allow that to go on. The National Council of Provinces, taking its cue from the National Assembly, must pass the NHI Bill. While the process unfolds, in the here and now the National Treasury must allocate adequate resources to healthcare public infrastructure, equipment, and professionals’ training, as well as building a state-owned pharmaceutical company.

Building a non-racial and non-sexist South Africa

The aims we seek to achieve through the Red October Campaign 2023, as with all our campaigns, must be won in such a way that will benefit women and promote redress, especially to eliminate gender and race inequalities.

It is important to appreciate the gender content of racially articulated class inequalities and roll back the entire legacy and structure of gender and racial inequalities as we deepen our struggle with and for the workers and poor.

Together, let us forge a popular left front to win the demands of the masses and build a non-racial and non-sexist society characterised by shared prosperity and systematic elimination of the exploitation of one person by another.  

Issued by Alex Mohubetswane Mashilo, National Spokesperson, SACP, 1 October 2023