BUDGET SPEECH AND IMPLICATIONS ON THE FIGHT AGAINST INEQUALITY IN SOUTH AFRICA

Finance Minister Tito Mboweni’s budget speech has come and gone, with the usual varied responses that come with such a crucial annual event on the nation’s calendar.

Much has been said about whether the measures introduced by Treasury will be sufficient to appease global ratings agencies, in order to avoid another ratings downgrade.

My only question here, would be whether that should be the uppermost question on our minds, given the multiplicity of problems that we are faced with as a country, but perhaps that question could be an indication of ignorance on my part, so not worth entertaining.

Of course, we must cut expenditure and show fiscal discipline given the problem we are faced with of growing fiscal debt, but from the budget speech one is left with a simple question: how does SA contain spending whilst boosting growth? A former colleague of mine, who deals with matters economic within the Gauteng provincial government and is the quintessential bureaucrat, in discussing the budget speech with me, used a proper bureaucratic phrase, when he said that we need to focus on “constraint optimisation” in order to turn things around.

Apart from the one opposition party, which described the budget as “neo-liberal” (labelling is a favourite South African past-time when we don’t have cogent arguments to put forward), the budget seemed to receive a positive response, with most analysts actually shocked by the tax relief given to South Africans, with personal income tax brackets adjusted above the inflation rate, no VAT increase despite the wild pre-budget speculation, South African corporate tax remaining unchanged at 28%, which is crucial because the tax rates in other countries have fallen, meaning that South Africa has become relatively less competitive as an investment destination.

There is clearly an attempt to broaden the South African tax base and reduce tax rates in order to promote economic growth, however the challenge remains that within all this, cutting expenditure has consequences for economic growth. Since 1994 South Africa’s fiscal instruments and tax system have been mostly progressive, with South Africa’s wealthiest individuals, who earn 63.7% of the income, paying 86.9% of total personal income, according to a 2015 paper on progressive taxation, government spending and inequality in South Africa by Ingrid Woolard, Rebecca Metz and Mashekwa Maboshe from the University of Cape Town, Nora Lustig from Tulane University and Gabriela Inchauste and Catriona Purfield from the World Bank.

The very same paper referenced above, states that, “Through progressive taxation and pro-poor social spending, the SA fiscal system reduces income inequality significantly. The extent of this reduction is larger than in twelve comparable middle-income countries measured similarly. Nevertheless, ‘final’ income (i.e. income after major taxes, government transfers and spending) remains more unequal than in comparator countries. While the fiscal system has an important role to play in reducing inequality, interventions to improve the distribution of wages, salaries and capital income are needed.”

So, we are faced with a situation where we celebrate the unexpected tax relief, but must cut spending whilst stimulating growth and must implement measures to improve the distribution of wages and salaries in society in order to address income inequality, whilst looking to cut the public sector wage bill (which must be cut by the way. I support that, in case anyone was wondering whether I would be conflicted on this issue as a civil servant).

So, what does all this mean for the struggle against inequality in South Africa? A 2015 World Bank Study, titled The Distributional Impact of Fiscal Policy in South Africa, found that, since 1994, “in large part progress towards greater income equality has proven elusive because of the enduring legacy of the apartheid system. This is true in spite of the fact that South Africa’s government has tried to attack the inequality inertia at its roots on several fronts, including most prominently through taxation and social spending.”

I can already hear the commentariat on this platform, in their parochial subjectivity saying, “there goes this dumb, corrupt ANC cadre again, blaming apartheid for everything”, but my defence in this case is that I am quoting a World Bank report (which is about as “neoliberal” as it gets as some ideologues are wont to remind us), not my own thoughts and preferences.

So, despite a progressive fiscal and taxation regime post 1994, we have not dismantled the apartheid legacy, hence we continue to struggle with inequality within our country. How do we dismantle that legacy? Well, that is the question that informs our politics at present and is the subject of much debate within the public space.

What is evident from the two papers I have quoted in this article is that South Africa’s fiscal spending and taxation has been very progressive, to the extent that despite growing inequality, our Gini coefficient would have been even higher without these interventions.

In fact , the World Bank Study finds that, social spending results in sizable increases in the incomes of the poor and that our fiscal policy has achieved appreciable reductions in income inequality and poverty, with these reductions being in fact, the largest in emerging market countries. Despite this however, levels of inequality and poverty remain high in SA. So how does one look at the current budget, in light of all these facts?

These are critical things to consider, because the growing debt to GDP and debt indicators are an indication of the limited scope that we have as a country, in terms of spending more in order to achieve greater redistribution. The classical growth/redistribution conundrum still confronts us in these admittedly dark economic times, our “winter of discontent” to quote Shakespeare’s Richard III or in more contemporary times, the 1978/79 crisis in Britain. Our hope remains that, in the words of the historical character Mark Antony from the 2005 television series, Rome, “Winter does not last forever. Spring comes. Snows melt.”

Mugabe Ratshikuni works for the Gauteng provincial government; He is an activist with a passion for social justice and transformation. He writes here in his personal capacity.