Caught between the credit ratings agencies and the local government elections – AIDC on 2016/2017 budget

by Apr 18, 2016Articles, Budget 2016/2017, Political Economy, Special Features


The 2016/17 budget will hurt, but the real pain is still to come. The Minister of Finance has cleverly deferred the real pain to non-electoral years. As for now, the budget is a prisoner of the demands from the credit ratings agencies and the need to stop the further alienation of the ANC’s electoral base before the forthcoming local government elections. It is however doubtful that the measures announced by Finance Minister Gordhan will satisfy the credit ratings agencies and prevent a down grade to junk level. Should a down grading occur, it will throw out most of the calculations that this budget is based on. The Treasury promises that such an event will be met by “aggressive austerity measures” (Budget Review p.30), obviously believing that this is politically and socially possible. In the current climate of increased social tensions, this is delusional. But the government is trapped in the neo-liberal cage and the longer it stays the same, the worse it will get.


The Fees Must Fall movement will be deeply disappointed with this budget. It fails to put free higher education on the radar, never mind suggesting a free education and insourcing plan. R16bn is reallocated to post school education and training, but the allocation in real terms per student over the coming three years will fall!


The budget perpetuates a development path that has failed and which has brought us to this crisis point. It contains no perspective of dealing with South Africa’s nightmarish unemployment and inequality levels. What is the government’s strategy to deal with the current wave of retrenchments affecting the heart land of the country’s industrial base (mining and mineral processing)? The budget has nothing to say. The indecisiveness of the government is evident.


The poor will get poorer as a result of this budget. While the social grants are increased by 6.1-6.4% (the foster care grant by a mere 3.4%), the cost of living will rise much more among the poorest households. Already in Statistics SA’s inflation report for January, the inflation that hits the poor is measured at 6.6% year on year. Food inflation alone is expected to rise to well above 10% this year, further eroding the grant increases.


The insufficient increases of the social grants are especially appalling since there was a political space before the budget for increased taxation of high income earners. Surprisingly, the government did not use the space. Instead it balances a slight increase of personal taxation (through the effect of inflation on tax brackets) by increasing the tax credit for medical insurance. Given the government’s commitment to a national health insurance scheme, one must wonder why this tax credit is not instead gradually withdrawn. On the individual level, the net effect of the adjustments in fact becomes a tax cut across the board, even for income millionaires (p. 143 in the Budget Review)! The major tax increases hit consumption and are regressive. The increase of the fuel levy by 30 cents per litre adds R6.8bn to the revenue, but this will hit the working class and the poor harder, as they spend a larger share of their income on transports, just as is the case with food inflation.


In this budget the Treasury is further cutting the size of the public sector, by reducing the budget deficit more aggressively than was indicated in the Midterm Budget policy statement. This is what the credit ratings agencies wanted and demanded. A smaller public sector will increase the social crisis for the majority. Minister Gordhan has also strongly signalled that privatisation is back on the government’s agenda. This will be pursued through the sale of “non-performing assets”, but it has greater significance in the form of private public partnerships in the delivery of mega infrastructure projects in transport, energy e t c. The renewable energy industry has already been handed over to big multinational corporations. Now the government intends to do the same with coal fire power stations and even nuclear. This will accelerate the increase in tariffs for basic services, such as electricity, transport and possibly water and sanitation.


In the coming year, South Africa will require new alliances of students, workers and poor communities to bury austerity, privatisation and the neo liberal trajectory that this government is wedded to under the tutelage of the creditors and predatory financiers.


Further comments: Brian Ashely: 0820857088 and Dick Forslund: 0828957947

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