In his 2023 State of the Nation (SONA) address, President Ramaphosa set out his government’s agenda for the next year. The myriad shortcomings of that agenda aside, the likely implementation and realisation of commitments made are dependent on whether the Minister of Finance, in the Treasury’s 2023/2024 Budget, will mobilise resources and allocate them to where they are needed most.
In previous years, and most recently in 2022, key commitments made in SONA have been undermined by the Budget, which either falls short, shrinks year-on-year, or is capped at insufficient amounts to realise government’s commitments. In 2022, this was illustrated by Treasury’s failure to decisively address Eskom’s debt and to consider Eskom’s rising energy costs. As a direct consequence of Treasury’s failure to do so, the National Energy Regulator of South Africa (NERSA) has since had to approve Eskom’s application for an 18.6% electricity tariff increase which will only further worsen energy poverty and economic strain on households and businesses. Other examples of where Budget 2022 fell short of the commitments made by the President are illustrated in the table at the end of this document.
This year’s SONA largely focused on resolving the energy crisis, updating the nation on progress in infrastructure projects, and efforts to create opportunities for young people, as well as extending social support through the SRD.
Our post-SONA statement outlined how the SONA fell short on the key measures that are needed to fix Eskom, address load shedding, and expand social protection to alleviate poverty and inequality. We argued that public institutions need to be capacitated to deliver public services, where the state, and not the private sector, plays an overwhelming role in the delivery of public services to ensure inclusive development.
National budgets have systematically undermined this objective, cementing a regressive macroeconomic policy framework, prioritising debt stabilisation through a rush to reach a primary budget surplus, using tax windfalls to pay down debt, and cutting back on spending on social priorities such as public services, while offering tax rebates to the wealthy. At the same time, the South African Reserve Bank (SARB) continues to hike interest rates, as part of its inflation targeting regime, choking private sector investment and eroding household incomes. Government must abandon such a policy approach in order to enable the state to meaningfully tackle unemployment, poverty, and inequality.
A budgetary regime which takes growth, employment, poverty, and inequality as seriously as debt stabilisation would ensure that resources are mobilised through: new forms of tax; new channels of concessional development finance; untapped pools of public funds; and cost and credit allocation policies to lower the cost of available debt. It would reverse budget cuts and abandon National Treasury’s quest for a primary budget surplus by 2023/24, given there is no evidence supporting the notion that a threshold exists at which debt stifles economic growth. A development-focused budget would prioritise public investment in physical infrastructure, the care economy, and the green economy, all of which have been shown to have a positive impact on employment outcomes and GDP growth. For instance the International Trade Union Confederation found that an increase of 1% in Gross Capital Fixed Formation (GFCF) leads to an increase of “1.3% contemporaneously and by 2.4% in five years” while “employment of women and men increases by 6.8% and 4.1% respectively in five years”. By contrast, the National Treasury continues to starve the economy with dismal levels of GFCF, which, for the public sector, has averaged around 5.8% of the GDP between 2010 and 2020.
The purview of monetary policy must be widened to prioritise financing for developmental reindustrialisation. The SARB should target real variables, such as real GDP growth, employment, and a stable and competitive exchange rate, not just nominal inflation. A range of progressive policy measures would flow from revising targets in this way. Some examples include unlocking catalytic sums of long-term real concessional developmental finance, targeted capital management techniques, lower real interest rates, and more active exchange rate management. Monetary policy should be used to reduce the cost of debt, and address the lack of competition in the banking sector and the very high spread between the repo and prime interest rates which makes the cost of credit unacceptably high. Instructing the SARB to pursue a broader range of targets is within the authority of National Treasury.
Key priorities for this budget include the requirement to:
- Accelerate the rebuilding of state institutions and their capacity to play a leading role in development projects. This entails urgently curbing corruption in the state and state owned enterprises (SOEs) and prosecuting those responsible for it. It requires that the National Treasury should identify and allocate sufficient resources to support SOEs. This support should come without conditionalities for their privatisation as was implied in the 2022 MTBPS. Budgets for key state institutions, especially those able to provide services, tackle corruption, protect rights, and raise revenue, such as the South Africa Social Security Agency (SASSA), National Prosecuting Authority (NPA), Commission for Conciliation, Mediation and Arbitration (CCMA), and South African Revenue Service (SARS) must also be expanded respectively.
- Fix Eskom’s current fleet. Priority should be given to urgent maintenance on power plants with the greatest ability to improve Eskom’s energy availability factor. For as long as sufficient and stable energy is unavailable, and insufficient investment goes into diversifying energy sources, South Africa is likely to foster indifference with trading partners and new investors.
- Address Eskom’s debt crisis by (1) The state absorbing Eskom’s debt, (2) Using larger quasi-state creditors, particularly the GEPF, to write-off Eskom debt or to provide an interest payment holiday, and (3) Channelling international climate finance into resolving Eskom’s debt while protecting Eskom from privatisation.
- Reduce Eskom’s energy costs. The three main drivers of Eskom’s energy costs must be tackled, these include the rising cost of energy from independent power producers (IPP), diesel, and coal. The cost of electricity from IPP power purchase agreements, which account for a third of Eskom’s primary energy costs, from bid windows 1 to 4 must be renegotiated. Eskom must procure diesel directly from wholesalers, instead of through retailers, saving Eskom just over R1 billion. The cost of coal must be reduced through regulation and Eskom should not be charged export parity prices for coal.
- Ensure the Just Energy Transition – Investment Plan (JET-IP) is actually just. The JET-IP needs to be reorientated to ensure a better balance between the need for infrastructure provision and the imperatives of job creation and sustaining livelihoods. Funding for economic diversification and innovation, as well as skills development, needs to be radically increased above the dismal 0.3% and 0.1% of the financing currently allocated, particularly in more labour absorbing green sectors such as renewable energy manufacturing. A large social security fund needs to be set up for transitioning workers. The JET-IP must be processed through a fair and consultative process that takes seriously, and incorporates, stakeholder input.
- Raise the Social Relief of Distress (SRD) grant to at least the Food Poverty Line (R633) now and take concrete steps to transition it into a UBIG. The budget allocation must be sufficient to ensure it is increased to this level and available to all those who need it. This would reverse the existing National Treasury approach that unduly capped the SRD budget, resulting in restrictions that saw approval numbers plummet from 10.9 million in March 2022 to 7.4 million in January 2023. Although the President has committed to raise grants in line with inflation, draft regulations indicate that the SRD grant will remain at R350. With approximately a quarter of the country in extreme poverty, this is unacceptable. The IEJ is prepared to challenge any further cuts to the SRD budget. Existing grants should also be expanded in line with inflation, and must not be pitted against the SRD.
- Expand the Presidential Employment Stimulus (PES) to support youth employment and development of career pathways. At present the stimulus is insufficient to dent the youth unemployment crisis. In 2021, 15-to-24 year olds reached a record 65% unemployment level, with 25-to-34 year olds reaching a level of 43%. The PES should be scaled up, improved, and evaluated to ensure it supports more young people, in particular, to acquire skills and enhance their career pathways. The PES must continue to create and retain jobs in vulnerable sectors, providing direct support for livelihood strategies, and accelerating employment.
- Commit to targeted public investment in social and economic infrastructure and the care economy. This must include more Early Childhood Development (ECD) and elder care centres, police stations and community clinics located within the communities that require these services, increased budgets for teachers and teacher training, nurses and social workers, for roads, and safe and reliable public transport. It must also target economic infrastructure and plans to diversify the economy, particularly in those sectors with approved Masterplans. There can be no inclusive economic growth without adequate investments in social infrastructure, the care economy, and economic infrastructure. Infrastructure delivery must be designed to ensure that market power cannot be exploited, and that black and women-owned businesses can participate in infrastructure development programmes.
- Announce progressive new forms of tax such as a wealth tax. While reconstructing a macroeconomic framework that can drive a truly developmental programme will require accessing multiple coordinated tax, debt, and financing instruments, the introduction of a wealth tax is a realisable means to unlock additional revenue and ensure that priority expenditures are resourced.
- Apply fuel tax rebates to ease fuel price pressures further in the 2023/24 Budget. Inflation internationally and in the domestic market, is currently driven by cost-shocks and profit spirals in the wake of Covid-19 supply chain constraints, and by the war in Ukraine which shows no signs of abating. While fuel inflation eased to 13% in January 2023 from 23% in December 2022, it remains a key inflation driver along with gas, and fertiliser and grain supply and prices, which filter directly into energy, transport, and food prices. Real incomes for the poorest South Africans are under severe pressure and a fuel tax rebate to stabilise fuel prices at a lower level would be a timely and effective supply-side response to easing the dire cost of living pressure on poor households.
- Ensure fiscal and monetary policy work together to increase resources available for development. This includes prioritising the capitalisation of development finance institutions in order to ensure long-term concessional finance is available to realise a state-led, developmental, green reindustrialisation programme that makes broad-based inclusion in the economy a reality.