Budget 2015 austerity by stealth – United Front

Kwezilomso Mbandazayo 26 February 2015
Organisation deeply angered by the tabling of one of post-apartheid’s most conservative budgets

PRESS STATEMENT IN RESPONSE TO THE 2015/2016 BUDGET

AUSTERITY BY STEALTH

The United Front is deeply angered by the tabling of one of post-apartheid’s most conservative budgets. This austerity budget is going to further constrain our already stagnating economy. The austerity medicine Nene has prescribed is more likely to kill the patient than create a speedy recovery.

Instead of increasing expenditure to ensure our people have access to decent public services and create decent work, the government is cutting expenditure that will make the situation of poor and working people even worse. What is more, further and bigger cuts planned in subsequent years are likely to drive our economy back into recession. This justifies the march on National Budget Day by several thousand United Front supporters to demand a People’s Budget.

Austerity cuts

Government cuts will further destroy jobs in the public sector. Previously frozen posts of teachers, health-care workers and technicians have now been done away with. This will seriously undermine the delivery of basic and essential services such as water, sanitation and electricity. This will further fuel “low intensity insurgency”, otherwise known as service delivery protests.

This in a situation where Stats SA has acknowledged that many more people in SA live in absolute poverty. In 2011, 27 million South Africans lived in poverty and 10.8 million in extreme poverty. Millions of our people are going to bed hungry. When government cuts expenditure, working and unemployed people are forced to cut vital spending just to ensure they do not starve. This budget completely fails to address this social disaster.

Social grants

The failure of the Budget is illustrated by the social grant policy. 16 million people get social grants. All these different grants have been cut in real terms in this budget when using the inflation figures relevant to the 20 percent poorest households (5.6% as reported by StatsSA). This pinching of the poor by stealth amounts to at least R40-million in real cut per month in total buying power, hurting markets for essential goods.

Clearly the Treasury is not budgeting according to needs, but according to the diktats of the credit rating institutes, the International Monetary Fund (IMF) and the rich creditors. It is in fact doubtful if the new budget ceiling of a R25 billion rand cut over two years is in compliance with the Constitution. The Constitution requires of the Treasury to progressively realise the social-economic rights guaranteed in the Bill of Rights.

Cuts across the board

The Financial Fiscal Commission, as part of its constitutional mandate, last year recommended that the government “avoid across the board cuts when implementing expenditure ceiling to control debt”. This has fallen on deaf ears. Despite the Minister claiming otherwise, the cuts apply to both critical and “non-critical” items. The “prudent budget framework” means that provincial and local governments will experience a reduction in real terms in their baseline allocations.

For example, Minister Nene indicates that the provincial equitable share allocations will be reduced in nominal terms by R2.6 billion in 2015/16 and R3.9 billion in 2016/17. The devil is always in the detail. When looking at key service delivery department’s such as Health, we see that provincial health allocations will be cut by nearly half a billion rand in 2015/16 to over a billion rand in 2016/17.

Again no allocation has been made to the National Health Insurance (NHI). It would seem that left to the Treasury, the NHI will never see the light of day. Basic Education sees  reductions in their allocations by R228 million in 2015/16 and R339 million in 2016/17.

As for municipal infrastructure, municipal water infrastructure, urban settlements development and rural households infrastructure, they see a reduction of  R623 million in 2015/16 and 1 billion rand in 2016/17. Treasury defends such cuts by saying that many of the grants allocated to these Departments were ones with a “history of underspending” and that “impact on service delivery should be minimised if spending patterns improve”.

This begs the question, how will these Departments improve delivery in a context where they are being expected to do more with less?

Avoiding taxing the rich

Government had a choice to cut expenditure or to increase taxation on the rich. The much vaunted and feared tax increases on the wealthy did not materialise. For example, a person that earns R1.5 million rand per year in taxable income will now “crumble” under an additional R840 per month in income tax![1] This equals one restaurant bill less per month.

Indeed, the blunt increases of the tax rates for the middle and high income earners have led to a zero increase in total state revenue from personal income tax (PIT). Tax relief for “fiscal drag” and for medical insurance neutralised Nene’s midget step.

Taxation has not increased by R17 billion, as claimed by the Minister in his speech. The net increase is R8 billion, all of which has been raised through regressive tax measures such as increasing the fuel levy and sin taxes.

A special note must be made on the Unemployment “Insurance” Fund. Even though SA has an official unemployment rate of  25% this “insurance” fund has accumulated a staggering surplus of R121bn, and is budgeted to increase to over R160bn in 2017. Just this surplus could have been used to avoid all Nene’s budget cuts and should be used to create decent work and services.

We note with dismay that government intends forging ahead with the expansion of environmentally dangerous fracking and coal fired energy plants at the expense of investing in socially owned renewable energy. The only reassuring part of this budget is the absence of a reference to financing the environmentally and financially cripling nuclear energy adventure. This may still come.

Today the government faced thousands of United Front supporters opposed to its fiscal policies. The struggle continues. Marches are being organised to co-incide with the tabling of the Provincial Budgets. We will continue the struggle for a Peoples Budget, one that puts people before profits.

Footnote:

[1] And not R1105 per month as stated on page 4 in The Budget Review, as is clear from the tables on page 48.

Statement issued by Kwezilomso Mbandazayo, National Co-Convenor, United Front, February 26 2015