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10 October 2020

Mboweni's Medium Term Budget Policy Statement Is Sending South Africa from Recession to Depression, Preparing a Clash with Public Sector Unions

 

As the finance minister delivered his Medium-Term Budget Policy Statement (MTBPS), thousands protested around the country against budget cuts and retrenchments under the banner of the Cry of the Xcluded. Anticipating government’s harsh austerity, the Cry of the Xcluded signalled the inevitable bitter fights to come over economic policy. Such is the level of attack on workers and the poor that we can expect the streets, not the board rooms, to be the main battlegrounds.

The MTBPS is a plan for sending South Africa from recession to economic depression. This will be the result of Finance Minister Mboweni’s attempt to reach a surplus in the government spending budget over 5 years.

To meet the demands of the creditors, the credit rating agencies and the so-called investors, to whom we have to bow down to, Mboweni is planning three years of extreme budget cuts: Year 1 - R60; year 2 - R90 billion and year 3 - R150 billion. That is more than R300 billion over three years. The biggest share is coming from cuts to government workers’ wages. 

It is a disastrous plan that makes a mockery of any ideas about “economic recovery” and a government stimulus. 

The result will be more unemployment, which the government in its delusion thinks can be off-set by 800 000 short term jobs at EPWP wages. Some economists are now predicting an official unemployment rate of 35% meaning a real unemployment rate of well over 40%. 

Public sector workers are the main target for these cuts. The Treasury has already, unlawfully, pulled out of the current wage agreement and has given workers a 0% wage increase this year. The MTBPS plans for a further three years of 0% increases, which after inflation mean real cuts in wages. Our frontline workers, our nurses, doctors, teachers, social workers, police and others are given “shit for thanks” – a four-year wage freeze!

  • First, this draconian cut in government spending focused on wages will hit all shops and business with lower demand for their goods. The holy grail of GDP growth will disappear with the rainbow.
  • Second, it is bound to lead to a major clash with the public sector unions, similar to the clash with the coal miners in Britain forty years ago under Margaret Thatcher. 
  • Third, it will lead to public service workers trying to leave and find private employment. Employment in public service will decrease. Indeed, the only way to achieve a 200 billion-plus cut in the “wage bill” is to reduce public employment. 

Local government is the other major target for cutting expenditure. Again, poor and working-class communities are made to bear the costs of this crisis. You can be sure our towns and cities will further decay, potholes everywhere, townships turned into rubbish dumps and service delivery a pipe dream!

In his speech, Tito Mboweni completely dismissed increasing taxation on the wealthy as an alternative to this extreme austerity. This is another indication of which social class is privileged by this government. 

What we need is to going back to taxing the lifestyles of high-income earners at the same levels as they were taxed in 2005. This would increase tax revenue by then more R200 billion per year. That would mean taxing 200 000 people with salaries above R1 million at 45% above that million instead of on the amount over R1.5 million as today. Further, researchers at Wits showed that a small wealth tax on people with assets greater than R3.6 million could raise R143 billion in tax per year, even if a third of these wealthy people would manage to avoid paying the tax. Indeed, and on that note, Mboweni mentioned the improvement in the SA Revenue Services but refused to commit to employing the 800 more key employees at SARS needed to deal with the tax dodging of the rich and corporate profit shifting amounting to between R160-R400 billion per year. 

Mboweni further used the notion of “negative fiscal multiplier”, to ideologically justify his particular brand of depression economics. Spend money on social grants, Finance Minister, like a basic income grant. Spend money on public employment at decent wages. Employ workers to build the houses our people need, as well as schools and clinics. Rebuild our railways and spend money on social infrastructure like leaking water pipes, then you will see how spending will multiply in the local economy. 

But spend money on overpriced procurement and mega project as you do now, and half of the money will leak abroad, stay in the idle bank accounts of the corporate elites or pay for imported luxury goods! 

There is an alternative to Mboweni’s craziness but it must be fought for! When the February 2021/22 budget is presented we will have no choice but to take to the streets again with bigger numbers!

 

Issued by: Cry of the Xcluded, Assembly of the Unemployed, the Alternative Information & Development Centre and the Fight Inequality Alliance South Africa.