By Lehlohonolo Lehana.
The National Treasury remains tight-lipped about the country’s cash crunch amid a crucial medium-term budget policy statement in November 2023.
The Sunday Times reported that President Cyril Ramaphosa held secret meetings with ministers, at the Spier Wine Farm in Stellenbosch.
Treasury told Ramaphosa that South Africa will have to hike value-added tax (VAT) if it wants to keep the R350 Social Relief of Distress (SRD) grant going.
South Africa has effectively hit its budget limit, with revenues not meeting the February budget expectations, while government spending has continued to balloon far beyond what was planned. To avoid financial collapse, sacrifices now have to be made.
On top of proposals to freeze hiring and new projects, new cost-cutting measures that have emerged in Treasury’s plan reportedly include cutting down the number of departments in government.
Ramaphosa hinted earlier this week that he was not in favour of budget cuts, saying that they were “not necessarily” the answer to South Africa’s financial woes.
However, he was told at this week’s meeting that huge trade-offs would have to be made somewhere.
For instance, if the government wants to keep the popular R350 SRD grant going, it will need to raise R42 billion – or R55 million if it is raised to R450. This would require VAT to be hiked by 1% or 2%, respectively.
The SRD grant, initially implemented to offer some relief to the multitude of jobless South Africans impacted by the Covid-19 pandemic, has been extended several times.
The current end date of the grant is March 2024, but the political reality is that the grant has become a de facto basic income grant for the unemployed, with around 8 million recipients. To kill the grant would be an incredibly unpopular move – a huge risk ahead of the 2024 elections.
Meanwhile, DA spokesperson on finance, Dion George, said his party had raised concern that there had been no provision in the February 2022-23 Budget speech for an extension of the SRD beyond 2024.
George said: “In response, government stated that a revised social security model was being designed, followed by silence. This meeting may well be part of a desperate scramble to find money to fund an extension of the grant and also to plug the massive gap between projected revenue and actual revenue.
“The simple fact is that government has run out of money and cannot fund items budgeted in February, let alone the SRD.”
George said the root cause of the crisis is “tepid” economic growth.
“This is a direct result of failed economic policy and poor fiscal choices, such as positioning government in the wrong place in the economy; a bloated Cabinet; a proliferation of agencies that are nothing more than expensive employment agencies for ANC cadres; keeping hopelessly bankrupt state-owned enterprises (SOEs) barely afloat; an energy crisis that has significantly disrupted the ability of business to function and systemic corruption that has led to greylisting and driven out business confidence and deterred local and foreign investment. The list goes on,” George said.
He said the government had failed to make the hard choices needed to keep the country “financially afloat”.
“Cutting expenditure on the periphery won’t work. Offering early retirement to public sector employees and cutting back on visible policing and other essential services won’t make any difference. Cutting the size of the bloated Cabinet would be a positive step, and that would need to include slimming the public service of the overpaid, underproductive management layers and not overworked front-line service providers,” George said.
Saftu and Cosatu heads called on all unions, workers, and the public of South Africa to stand against any budgetary cuts which are a result of an incompetent government.
The finances of government would not be in a precarious position if it had invested in infrastructure.
“The problem is that the government itself is on an investment strike, and it’s allowed the private sector to be on an investment strike. We’re now sitting at around an investment of only 14% of GDP. The economy can’t grow this way,” said Saftu general secretary Zwelinzima Vavi.
Cosatu president Zingiswa Losi added budget cuts would not help resolve the economic crisis in the country. The labour federation rejected “reckless attempts to impose misguided austerity budget cuts” across government.