ON 23RD FEBRUARY, FINANCE Minister Enoch Godongwana delivered the third extremely harsh austerity budget in three years. In this budget, the Treasury and the whole government follow through on the budget cuts announced in the Mid Term Budget in November. And they are more outspoken than ever in their privatising programme for Eskom. Key parts of the state-owned enterprise (SOE) Transnet are added to the privatisation list, as indicated in the Country Partnership Framework signed with the World Bank in June 2021.
It was in February 2020 that the Treasury declared it would not implement the third year of the 2018 wage agreement with the public sector unions. The unions lost their case in the Constitutional Court at the beginning of March this year, just as they previously lost their case in the Labour Appeal Court (See the interview with Sidney Kgara of Nehawu).
The key numbers
To know what the 2022 budget means to the public service sector, key numbers to look at are as usual the resources allocated to public health, to basic education and to social grants, for this budget year and the two following years.
Social grants are called “Social Protection” in the budgets. For the coming twelve months, the social grant budget has increased because of the decision to continue paying R350 per month to about 10 million people (some 14 million people applied for it last year).
In 2023, this special Covid grant will be taken away and the total of other grant payments will be cut. Compared to this year, the social grant budget will have dropped in value by R46.3 billion when we reach the 2024/25 budget year. Then there is an issue about how CPI is calculated. Social grants are used to buy a limited number of necessary things. In contrast, the “CPI” measure is based on a basket of goods and services for the whole population. The way the middle class and the rich spend their money counts more in the CPI, simply because they consume the most.
On the other hand, the Household Affordability Index published by Economic Justice and Dignity in Pietermaritzburg measures the increase for a working-class household basket in five major towns and cities. In contrast to the CPI, this index measures items bought by someone on a typical wage for an employee of R3,900. It recorded an 8.6% price increase. The price increase for essentials is three percentage points higher than the official “average” CPI increase. It is also 2.5 percentage points higher than official food inflation, as reported by Statistics SA.
Indeed, the Treasury’s 2022 Budget Review forecasts food inflation falling, from 5.1% in 2022 to 4.5% over three years. This forecast does not accord with the experience of the majority. And anyway it is overtaken by events.
Shift the burden to the rich
All forecasts of price increases before Russia invaded Ukraine can be thrown away. The economic sanctions against Russia, the soaring oil price and the fact that most transport of goods in SA is by road means that alarm bells are ringing loud and clear, demanding strong state intervention. All kinds of measures to redistribute the economic burdens from poor to rich ought to be on the table.
A sharp reduction in the fuel tax to curb food inflation and stop price increases in public transport could be considered. The general fuel levy is R3.93 per litre, and it wasn’t increased in this budget. It brought in R58 billion last year. So if it is cut or temporarily abolished, this would have to be combined with an equally sharp increase in personal income taxation for high-income earners.
And, of course, the cut in the corporate income tax (the tax on profits) announced in the budget from 28 to 27 percent should be withdrawn. It will simply cost R8-10 billion in lost tax revenue. There is no evidence of the “dynamic effects” of such a cut in the form of new investments.
In such a situation of enormous and growing imbalances, a progressive government could even introduce an extra tax on the super-profits of gold and platinum mining companies and an increase in the current 20% tax on dividends.
R80 billion have been paid in dividends to shareholders this year by Anglo Platinum. Prices of gold and platinum are becoming extreme. During war times and global “financial unrest”, the millionaires and billionaires of this world switch their financial wealth over to precious metals to feel more secure and get richer. And their dash for safety itself bids up the price of their assets.
For this government, however, redistribution from the minority who are getting richer from the crisis to the majority who are getting poorer, is out of the question. In fact, the opposite is true. Godongwana reduced tax for the middle class and the rich by adjusting tax brackets for inflation at a cost of R13.5 billion to the budget. There was no political pressure to do this. And this benefit was not given to the poorest – the recipients of the R350 Covid grant that has been hollowed out by price increases since April 2020. No increase for them.
From public to private
In sum, a progressive government would opt for a bigger role for the public sector in a situation of deep social crisis. This government is planning the opposite – budget cuts in essential public services like health and education.
A 16.9% reduction in resources for basic education in real terms. A 12.8% reduction for public health. Three years from now we will see:
- A continued moratorium on filling vacant posts. Public servants who retire quit their jobs or die are not replaced.
- A so-called “public sector wage freeze”, already started when the public employer in February 2020 refused to implement the third year of the 2018 wage agreement.
Comparing the numbers in the 2021 and 2022 Budget Reviews indicates that a reduction of over 5,000 public servants already happened last year.
Interestingly, the 3-year plan to cut 18,400 police officers spelled out in the 2021 “Estimates of National Expenditures” (ENE), was reduced to a cut of 5,300. So when President Ramaphosa referred in his SONA speech to thousands of new recruits, he was actually talking about a smaller reduction.
The change does, however, indicate that the government expects more social unrest, causing the Treasury to retreat. Similarly, the cut of 800 in courts staff over three years in the 2021 ENE has become an increase of 600 over three years in the 2022 ENE.
For others in national employment, staff cuts are on track, with few changes. For example, 3,900 fewer employed in the prisons three years from now. In short, the overall privatisation plan of the government to reduce the weight of public service in the economy is on track. The modifications of the cuts in national employment only puts more pressure on public health and education. Here it is the provinces that are the employers.
The cuts made visible
In March, the workers at Chris Hani Baragwanath Hospital protested against 800 nurses and doctors being retrenched by the Gauteng Department of Health. In February, health workers in Gqeberha protested for the same reason. All the “extra” staff employed on short term contracts at hospitals during the pandemic are being retrenched.
But before the pandemic there were already tens of thousands of public health vacancies. The 2018 Presidential Health Summit reported 37,000 vacancies in public health. Investigative journalists have time and time again described how the staff shortages, demoralisation of staff and lack of supplies continue to kill people right now. Make no mistake: these deaths are a budget choice.
Real wage protection or staff cuts
The Treasury has budgeted an increase of 2.6% in the public sector wage bill. That is significantly below inflation so it is a cut in real terms. The position of Treasury is that any increase above 2.6% will result in a cut in the number of staff to make up the difference. So, if a further cut of about 27,000 public health and education workers (at an average of R460,000 per job).
The second year of the 2022 Budget wants a drop in “Compensation of employees” from R682.5 to R675 billion. Taking the unavoidable 1.8-2.2% career related wage increases into account, this effectively means a staff reduction in public health and education of some 50,000 workers.
Role of the World Bank
And economic strategy is not developed by the South African Treasury in isolation. Two World Bank documents are right now directing it.
Of course, the World Bank and the International Monetary Fund have always influenced South Africa’s economic policy. But these two documents represent a political breakthrough. In an almost boastful way, the authors of the documents repeatedly describe the enhanced role of the World Bank. For example, they claim that “A joint the public sector unions were to negotiate a wage increase of 4.5% in line with inflation, the result would be monitoring plan involving members of key Government departments as well as WBG has been designed”. It is painful to read it.
Firstly, there is the long loan document which has the strange name Development Policy Operation (DPO). It was signed when the Treasury took the $750 million loan in January 2022. Secondly, we have the so-called Country Partnership Framework (CPF). That was signed as early as June 2021 but only surfaced in public when the loan document was signed.
Unlike any other loans to South Africa, this World Bank loan is “policy-based”. It is “the first-ever budget support operation the World Bank Group (WBG) has undertaken in South Africa” and it is “anchored in the World Bank Group Country Partnership Framework 2022–2026”.
And that document in its turn covers everything that has to do with South African economic policy and the government’s pet projects, going into regional detail. The World Bank will for example support four pilot projects for “Smart Cities”.
And it wants to help “national and provincial agencies in the Eastern Cape Province” to “address land administration-related constraints to investment”. The latter is clearly a convoluted reference to community ownership of land in the former Transkei, where land use is governed by customary law. What Steve Biko called “Black Communalism” is frustrating efforts to turn subsistence dagga farmers into wage labourers in “dagga factories”. “Land administration constraints” refers to the fact that land cannot be bought and sold and is community-controlled. Not a dispensation conducive to capitalist agriculture.
The details show that the CPF was written in close collaboration with the Treasury, and even with provincial government officials. Leaning on the World Bank, the government has transformed its policy of cutting the public sector and privatisation, as well as its focus on megaprojects, into loan conditions as a kind of political fig leaf.
A salent feature of both the DPO loan document and the underlying CPF is the promotion of “public-private partnerships” as well as private take-over of functions: “Under the CPF, the World Bank Group will support the design and implementation of customized support packages for SOEs in different sectors, with an initial focus on the transport SOE, Transnet, the Passenger Rail Agency of South Africa (PRASA), and the electricity SOE, Eskom.”
As for Transnet, the World Bank (and the government, who signed off after co-designing its own handcuffs) endorses “the introduction of the private sector in container terminal operation and management, and in the freight rail sector, both on the main lines, and on the branch lines”. The CPF indicates that Transnet is welcome to borrow more money to privatise these functions.
The document of course also supports the “unbundling” of Eskom. It points specifically to electricity distribution. This is the part of Eskom immediately most attractive to private corporations, as in other countries that have privatised electricity. The result? Eskom will be left to take care of distribution to Soweto and the bankrupt municipalities; private capital will take care of distribution to Sandton.
A recent analysis by Redge Nkosi from the Firstsource Money think tank has slammed the support for Public Private Partnerships (PPP) in President Ramaphosa’s SONA speech. It lists countries which have abandoned PPP arrangements for infrastructure development. When entering into PPPs, the state is fleeced by private for-profit mark ups and cost escalations. And that’s without mentioning the looting and corruption endemic in South African PPPs.
In 2018, the UK Finance Minister announced that the government is leaving PPP arrangements. Australia has found them too expensive. “The European Court of Auditors, the guardians of EU finances, found that PPPs cannot be regarded as an economically viable option for delivering infrastructure projects.” The French Senate has called them “financial time bombs”. “Yet in the most unequal economy on Earth, the SONA and the Budget promote these disastrous instruments”, writes Nkosi.
To save the public service from cuts and privatisation, there is no way out other than to mobilise to stop austerity completely. In the process, the Cosatu unions will have to break with their old political loyalties and the Fedusa unions with years of acceptance of the neoliberal paradigm and reluctance to bring out their members in struggle. The labour movement will have to radically change to meet this most severe of attacks.
Dick Forslund is an economist at the Alternative Information and Development Centre (AIDC).