The Alternative Information and Development Centre is convinced that the Budget tabled by Minister Enoch Godongwana will further impoverish South Africans, exacerbate unemployment and deepen the social crisis tearing our country apart.
The past five years have hollowed out critical public services such as education and healthcare, leaving over a hundred thousand funded posts vacant, with many more removed from the departmental organograms.
Following Minister Enoch Godongwana’s admission that austerity has failed, Budget 3.0 signals a temporary end to the harsh austerity measures that have been in place since the 2020 budget, as key departments such as health and basic education see slightly above inflation increases. There are, nonetheless, still many below-inflation increases (real cuts) to be found, as was the case in Budget 2.0. These include real cuts to arts, culture, sport and recreation, higher education, as well as on HIV and TB services, in addition to the loss of the USAID PEPFAR funding. There are also well below-inflation increases to peace and security, which include policing and home affairs.
For years, the austerity belt has been tightened around the public sector, with departments needing to choose between paying existing staff, filling vacancies, or doing essential spending on maintenance and necessary goods or services. The fact that the belt has not tightened further does not mean that departments will be able to breathe any easier. This budget fails to address the impacts caused by years of austerity measures and therefore will not reverse the damage that has been done. This fails to recognise the disintegration of society that has occurred as a result of unprecedented levels of unemployment, crime, and institutional and infrastructural collapse.
The number of filled frontline posts has fallen far behind the population’s needs. For example, there is one doctor for every 3000 people in South Africa. This is far from the WHO recommendation of one doctor for every 1000 people. We should actually be employing three times the number of doctors!
We should see the easing of budget cuts as a response to the significant pressure that has been put on the Treasury and the ruling party by both popular forces, trade unions, and opposing factions in government. For years, the ruling party has been accustomed to implementing policy without concern for politics, but it is clear that their difficulty to pass this budget has been a wake-up call to some extent. The reversal of the VAT increase and the fact that we have avoided massive cuts in response to it should be seen as a sign that we must intensify our efforts to organise and mobilise in resistance to the state’s overarching implementation of neoliberal policy in the face of growing social and economic crises.
Relief to poor households reversed
Relief to cushion the poorest households, struggling with food insecurity, has been rolled back since Budget 2.0, as the Treasury had tied these to the VAT increase. The relief measures which have now been withdrawn include:
- Proposed above inflation increases to social grants in 2026/27 and 2027/28.
- Proposals for additional zero-rated items. There will be no new zero-rated items.
- Proposal to leave the fuel levy unchanged. The levy will now be increased.
With Child Support Grant and Social Relief of Distress grants far below the food poverty line, and 1 in 5 households struggling with food security, such withdrawals to much-needed relief are unacceptable. So far this year alone, 155 children have died of malnutrition. While at the same time, both the Child Support Grant and the Social Relief of Distress (SRD) grant fall below the food poverty line. Recipients of the Social Relief of Distress Grant are not able to meet even half of their daily nutritional needs.
This budget has also announced that the fuel levy will be increased by inflation, which will cause increases to the cost of living across the board. Given the severe strain South Africans face to meet their basic needs, any increase to the cost of living will be devastating!
The National Crisis of Unemployment
We are concerned that very little is mentioned about how to address the problem of mass unemployment. The Quarterly Labour Force Survey was released last week, showing that the unemployment rate increased to 43 percent. Unemployment is not only higher than any other country in the world, but it is even higher than that of war-torn Germany during the Great Depression. This should be treated as a national emergency – something that has no echo in this Budget. In this regard, we call on the mandate of the South African Reserve Bank to be focused on policies and strategies towards job creation.
Instead of being a key policy target, job creation is a hopeful trickle-down effect of “macroeconomic stability and low inflation”. Over the last period, these very policies have been responsible for job losses. The government claims that during the five years of Phase I of Operation Vulindlela, R500 billion of investment was unlocked – yet new jobs were not added to the baseline over this same period.
Further measures to create growth and jobs are given as:
- “Greater private sector participation in public infrastructure.”
- “Remove the regulatory burden on business.”
- “Professionalising Utilities.”
- “Accelerating the release of publicly owned land and buildings.”
These measures might be straight from the World Bank’s playbook, but they are very far from the types of labour-intensive mass employment programmes needed to deal with this crisis.
Trickle Down Growth Puts Profits Over People
The government’s vision for growth and job creation, therefore, continues to focus on improving conditions for the private sector and hoping that they will invest and that this investment will lead to jobs. This is classic trickle-down economics, whereby creating jobs, improving poverty and inequality are viewed as hopeful by-products of improving conditions for elite business owners. South Africa’s deep problems require much more than improving the conditions of doing business and improving the conditions by which to accumulate capital!
Operation Vulindlela, which has recently moved into its second phase, is at the vanguard of this growth strategy, aiming to deal with infrastructure constraints and efficiency concerns by introducing a raft of PPPs as well as the mechanisms to manage and secure these partnerships. PPPs are envisioned as the solution to both the electricity and the rail crisis, and this year’s Budget(s) refer to the establishment of a centralised PPP structure under Treasury’s control that will allow for the management and fast-tracking of strategic PPPs. International experience has shown that PPPs are no replacement for sustained public investment on a public-goods basis. As raised in the recommendations of the standing and select committees on finance attached to this budget, PPPs and blended finance arrangements often result in the public sector taking on financial risk, while the private sector takes on the profits. Even ‘successful’ PPPs in key public services often rely on the commodification of basic services, which should not be provided for on a for-profit basis, but the private sector will not invest without the promise of profit. PPPs will further indebt the country, raise user fees and fail to create the millions of labour-intensive jobs so urgently needed.
The budget predicts a revised growth trajectory of 1.4%, well below what is needed to keep pace with the growing population and labour force. Even this is optimistic, as this is predicated on initiatives like Operation Vulindlela enabling greater volumes of exports at a time when international trade is in a state of chaos, with protectionism on the rise. Once again, the budget lacks any meaningful proposals to stimulate economic development, grow employment and fundamentally change the situation in the country.
South Africa needs to urgently reverse years of premature deindustrialisation. A reindustrialisation strategy, based on a publicly driven mass housing programme, expansion of public transport, energy and rural industrialisation to ensure higher levels of food production, particularly by small-scale farmers, has the potential of stimulating many downstream industries and creating many millions of jobs. However, this would require a fundamental break with austerity, trade and financial liberalisation as well as privatisation.
Alternatives to Neoliberal Fiscal Policy
In a context of the deep social crisis affecting the vast majority of the population, the government’s obsession with growing a primary budget surplus over the next few years is an insult to the extreme suffering of our people. Debt is not a problem if it is used for productive investment that creates jobs and potentially higher levels of growth and tax revenue that can outpace interest payments. This is where the national debate must go.
In addition, there are lots of opportunities for reducing debt interest costs. For example, the Public Investment Corporation and the Government Employees Pension Fund control trillions of Rand in assets, including a significant portion of government and SOE debt. At the same time, the GEPF is highly overfunded, sitting at 110% while it is only required to be 90% funded. These funds can invest greater levels of their assets in government borrowings at below-market interest rates, or voluntarily lower the repayments on existing bonds, without endangering their funding level nor pensions.
Treasury has indicated that new tax proposals to raise R20bn will be tabled at the 2026 budget. This is likely a response to a failure to reach a political compromise on revenue measures, instead opting to kick the can down the road. Treasury must consider progressive revenue options that begin to tackle the extreme wealth inequality in SA, where the top 1 percent own more than half the total wealth in the country. These include a wealth tax and a pause on the inflation-related adjustments to the tax brackets of the rich. We must emphasise that the government is highly unlikely to explore such measures without the kind of sustained public and political pressure that led to the reversal of the VAT hike.
Lastly, we note that the Treasury continues to push for a fiscal anchor in Budget 3.0, which is very likely to legislate a mandatory primary budget surplus going forward. The adoption of a fiscal anchor puts our democratic control over the budget at risk and could lock us into austerity, while closing down the space for any future large-scale public investment and reindustrialisation programme.
Minister Godongwana, this remains an austerity-oriented, anti-poor and anti-worker budget, which will further increase the suffering of our people.
