2023/4 National Budget Analysis

Alternative Information and Development Centre (AIDC) Statement

23 February 2023

“This is not an austerity budget”, said Finance Minister Enoch Godongwana in his 2023 budget speech. It is a blatant lie.

Yet another budget that centres the interests of the wealthy few over the needs of the majority. AIDC joins our allies in the social and labour movement in rejecting this budget. 

Throughout the budget, government makes choices in favour of the elites, creditors and corporate investors. Below we highlight some of these choices. 

The ANC government has forgotten who voted them into power. It is why public sector workers are wanting to go on strike and why working class communities are in revolt. It is just a matter of time before another social explosion rips through our society.

Once again, the government provides tax relief, especially for high income earners. This equates to forfeiting R14,9 billion in potential tax revenue. A person with a taxable income above R1,5 million gains over R20 000 per year, as result of compensating for so called ‘bracket creep’. At the same time, we see cuts in real terms for social protection and the wages of teachers and health care workers. For instance, after accounting for food price inflation, the old age pension grant will now be worth R35 less today than it was last year. 

In terms of the social relief of distress grant, the budget only makes provision for 8.5 million beneficiaries, effectively excluding at least 2 million people from much needed support. Moreover, the R350 SRD is now worth just R277 in 2023 compared to 2020, R73 less than when it was first introduced. This is in spite of millions of poor South Africans having to endure the cost of living crisis.

The most dramatic of the budget cuts is in health care – where there is a R 2 billion reduction in spending in nominal terms. Based on an inflation rate of 5,3% for the 2023/24 financial year, this amounts to close to a 6% reduction in real terms. Again it is the poor and working people who bear the cost of these reductions. 

The truth is that the Treasury’s hunt for The Holy Grail of a ‘Primary Budget Surplus’ has produced another austerity budget – just harsher than ever. The ‘Primary Budget Surplus’ is a commitment the government has made to its creditors, not least the World Bank after signing the ‘Country Partnership Framework in June 2021.

The severe budget cuts over several years is depicted in the diagram below. 

The cut in spending to the Main Budget (leaving aside debt service costs which are rising) will be R85.4 billion in real terms compared to the 2022 budget. The 2023 budget means a sharp drop in spending.

ENERGY CRISIS

The country waited with bated breath to hear what the minister of finance will do to assist in addressing the energy crisis. The government announced that it would provide Eskom with debt relief amounting to R254 billion over the next three years – R 78 billion in 2023/24, R66 billion in 2024/25 and R40 billion in 2025/26, as well taking over up to R70 billion of Eskom’s loan portfolio directly in 2025/26.

It is important that Eskom be relieved of some of its financial burden to allow it the financial space to fix the fleet and to invest in new capacity. There are, however, a number of critical issues:

1.  The debt relief comes with some unacceptable conditionalities, the unbundling of Eskom and the establishment of an independent transmission grid is a part of it. As we have warned previously: To those who believe the private sector is our saviour we refer to the many scandals engulfing big business, not least Sasol, Steinhoff and Hullets and remind readers of the disaster the concessioning of British rail was. As certain as night follows days, there will be massive retrenchments and even higher tariff increases to satisfy business’ profit maximisation drive. Privatisation of electricity should be a no-go zone, especially in a country like SA where more than 11 million people are unemployed and 55% of the population live under the poverty line.
2. Secondly, an opportunity was missed to utilize the R45 billion surplus of the Government Employees Pension Fund (GEPF) in 2021/22, which is in line with the average of a surplus of R50 billion each year. Given that the GEPF has more than R2,3 trillion in accumulated reserves, a lot more could have been done. Shifting the debt liability from the fiscus to the GEPF would free up resources needed to increase spending in key areas – not least health care;
3. Then there is a more fundamental problem. The government itself recognizes that debt relief is insufficient to ameliorate Eskom financial challenges – when it points out for example, that “National Treasury recognises that debt relief alone will not return the utility to financial sustainability” and that without the 18,7% and 12,7% tariff increases in 2023/24 and 2024/25, the debt relief is unsustainable. This highlights the untenability of Eskom’s finance model. Until adequate resources are directed to Eskom it will continue to need bail-outs and significant tariff increases. Energy poverty will persist.

PUBLIC SECTOR WAGE NEGOTIATIONS

When considering the state of Public Health and the pressure on health workers, the 2023 Budget Review is deplorable. Health is a public service function where the Department of Public Administration in December 2021 reported 39 000 vacancies. But the Finance Minister is proposing a real cut in the health wage bill by R15 billion from the spending in 2022/23 or by about 5.2% in real terms, if using the Treasury’s forecast of CPI inflation. The police can look at a nominal wage bill cut by -1.1%. The same can be said for education, a function that had 78 000 vacancies officially recognised in December 2021. 

This follows the 2020 ‘wage freeze’ and below inflation increases in 2021 and 2022, where the latest 3% increase was adopted without an agreement. This will not only mean a reduction in wages; it will also mean continued unfiled vacancies. As has been the case since 2018, there is no consequence analysis of what this plan to reduce the headcount in the public sector means for school children, for youth and for millions of users of public sector services. How will the public sector unions negotiate in this budget framework? 

In the coming days, AIDC will produce a more detailed analysis of the Budget. Nevertheless, it should be clear from this initial analysis, the 2023/4 budget will deepen the social disaster, which is the lot of the vast majority of our people.

CONTACT

Dominic Brown dominic@aidc.org.za 0813094973

Dick Forslund dick@aidc.org.za 0828957947

Website: https://www.aidc.org.za Twitter @AIDC_RSA