South African Communist Party
Expectations on the forthcoming budget
19 February 2022
Following the State of the Nation Address delivered by the President on Thursday, 10 February 2022, the Minister of Finance Enoch Godongwana will next week table the 2022–2023 fiscal year budget. What do we expect? What do we not expect?
Value-Added Tax
First of all, we do not expect an increase in the Value-Added Tax as that will be problematic. We say this against the background of right-wing media outlets including foreign news agencies mooting considerations for an increase in the VAT. Some of the propaganda outlets often serve as primers for forthcoming budgets.
The neo-liberal trajectory of reducing tax for the rich and increasing the tax that affects the working-class and poor is unsustainable.
In a country characterised by crisis-high levels of inequality, it makes sense to assert a more progressive taxation framework for redistribution and to support transformation and development.
Extension of the Social Relief of Distress Grant, the need to pursue a comprehensive social security system and poverty eradication strategy
The SACP expects the Minister of Finance, Enoch Godongwana, to allocate funds to put into practice the extension of the Social Relief of Distress (SDR) Grant in line with the announcement made by President Cyril Ramaphosa during the State of the Nation Address on Thursday, 11 February 2022. President Ramaphosa announced that the government has decided to extend the provision of the SDR Grant for a further one year, to the end of March 2023. This extension is in line with the call made by the SACP and other South Africans for the government to extend the SDR Grant.
However, while welcome, the extension of the SDR Grant does not cover all the aspects of our social policy call. Therefore, the SACP wants to take this opportunity to reiterate those aspects that the government left out without addressing in announcing the extension. Our proposal is that the government should commit to retaining the SDR Grant and adjusting it incrementally in a gradual process towards converting it into a universal basic income grant for unemployed South Africans. This should be an integral social policy provision of a wider imperative to build a minimum income guarantee programme in pursuit of a comprehensive social security system and poverty eradication strategy.
When fully developed, the minimum income guarantee programme should also articulate a supportive structure of grants to make successful productive initiatives taken by the people in their communities particularly through, but not exclusively, collective initiatives such as co-operatives.
The government introduced the R350 SDR Grant amidst the devastating impact of the global COVID-19 pandemic after public calls, among others made by the SACP, for the government to use social policy to mitigate the impact experienced by the working-class and poor. In the second quarter of 2020, for example, over 2.2 million workers were retrenched in our economy, overwhelmingly by private companies.
Industrialisation and the macroeconomic framework
The SACP wants to take this opportunity to reiterate its call for a review of the macroeconomic framework to support industrialisation, create employment at scale to radically bring down the crisis-high unemployment level, eradicate poverty, and radically reduce inequality.
Instead of continuing with either depriving industrialisation of adequate allocations or cutting industrialisation support, the budget must break ranks with the negative macroeconomic paradigm attitude towards industrialisation. To demonstrate commitment to industrialisation, the budget must increase, rather than continue to reduce, industrialisation related allocations.
In South Africa, industrial policy never in reality became an over-arching programme for the government as a whole but was instead reduced in practice to a programme of one department, the Department of Trade and Industry now called the Department of Trade Industry and Competition. Hand in hand with this attitude, industrial policy related programmes were not supported adequately in terms of funding allocations to operate at scale. For instance, of recent the industrial financing budget declined by 28.7 per cent in nominal terms between the 2016–2017 and the 2020–2021 financial years, or by 9.9 per cent if the special appropriation of R1.3 billion made in the R36.2 billion July 2021 package to support businesses affected by the riots in KwaZulu-Natal and Gauteng is considered.
During the State of the Nation Address and debate, President Ramaphosa underlined the importance of driving industrialisation. This was, however, not the first time after apartheid a South African head of state emphasised commitment to industrialisation. All previous Presidents, starting with President Nelson Mandela, did the same. However, the overall policy outcomes consisted in a contradiction involving de-industrialisation overwhelming industrialisation.
Why has that been the case?
As a key macroeconomic economic policy instrument, the budget has an important role to play in answering the question. However, since 1994 it has dismally failed to answer the question to adequately support industrialisation and halt the paradigm of de-industrialisation. Related to this, there is a deeply worrying tendency of policy incoherence in South Africa. This involves the budget frequently contradicting certain pronouncements made in the State of the Nation Address and once adopted both contradicting and overruling the affected pronouncements through deprivation of adequate allocations or through cuts in allocations.
Under the yoke of the macroeconomic framework until now enforced by the government, South Africa has consistently failed to industrialise, create employment at scale towards ensuring that no workers are involuntarily unemployed, eradicate poverty, and radically reduce inequality. The government imposed the macroeconomic framework starting first under the neo-liberal economic policy called Growth, Employment and Redistribution (GEAR) in 1996.
However, yet year in, year out, both the State of the Nation Address and the budget in February, as well as the Medium-Term Budget Policy Statement outlining the Medium-Term Expenditure Framework in October or November, sing the praises of the same macroeconomic paradigm under which the official unemployment rate that excludes discouraged work-seekers increased to crisis-high levels of above 20 per cent starting in 1996.
This is the context in which South Africa has failed to industrialise and stop de-industrialisation, eradicate poverty and radically reduce inequality. With the South African economy exposed to all sorts of volatility through the neo-liberal shock therapy imposed under GEAR, every global crisis battered the economy and worsened the already entrenched national unemployment crisis. This is the context in which total unemployment rose to its highest level affecting a population of approximately 12.5 million active and discouraged work-seekers in the third quarter of 2021.
As things stand, South Africa is pursuing a conservative policy of inflation targeting within a socio-economic framework characterised by the crisis-high unemployment level along with crisis-high levels of poverty and inequality with a massive crisis of social reproduction. The budget must demonstrably help South Africa to address this crisis situation.
Youth employment incentive
At 77.4 per cent for the youth aged 15 to 24 and 55.3 per cent for those aged 25 to 34, youth unemployment, including women unemployment, is the highest compared to all categories. It is against the background of not only the persistently high but increased youth unemployment outcomes that as a country we must judge the performance of the youth employment incentive implemented since 2014.
The incentive basically involved subsidising up to 50 per cent of the wages of new workers between the ages of 18 and 29 who are paid wages below R6,000 per month. This was introduced with the idea that by subsidising the wages, also effectively surprising wage increases, the incentive would reduce the effective cost of hiring the young workers, thus encourage private firms to employ more of them and thus reduce youth unemployment. The continuing crisis-high youth unemployment suggests a major failure in the idea.
Therefore, a review of the approach has become necessary.
Public infrastructure development
Infrastructure development has a key socio-economic role to play, including in employment creation. Therefore, we expect the budget to announce adequate levels of support for both economic and social infrastructure development and maintenance. This should include an allocation to revitalise the rail network that has been vandalised and looted and should avoid financialisation of public infrastructure.
While the government has demonstrably showed concern about reducing the cost of doing business, the unabated destruction of the rail network implies that it is not equally committed to reducing the cost that workers incur when travelling to and from work or to look for work. Moreover, since 1994 the state has not expanded passenger rail network to areas that the apartheid regime excluded from rail network coverage and commensurate with the expansion of human settlement to new areas, consistent with integrated human settlement. Trains are an affordable mode of transport for the working-class.
Therefore, the government must take building and safeguarding an integrated, affordable, safe and reliable public transport system seriously.
Democratic policy sovereignty
The SACP wants to take this opportunity to reaffirm its strong opposition to any fiscal or other policy measures that have the effect of subordinating our democratic policy space to any neo-liberal agenda driven by the Washington-based International Monetary Fund and World Bank, by the Paris-based Organisation for Economic Co-Operation and Development, by credit rating agencies, or by any other institution or class, domestic and foreign. This firm opposition includes opposition to the use of the National Treasury as a vehicle for importing, domesticating and implementing such agendas.
Issued by the SACP, 20 February 2022
