Big social spending cuts will prove counterproductive

It is commonplace for national budgets to reveal a country’s true priorities. By extension, spending cuts show what you don’t value. The recent medium-term budget policy statement (MTBPS) suggests the National Treasury couldn’t care less about equality and the black middle class, but really wants more infrastructure and lower debt. To achieve those goals it seems prepared to shred the implicit social compacts that hold our inequitable and divided country together.

We can’t simply wish away the fiscal squeeze. In 2021, in real terms revenues crashed 10% while spending climbed 1%. This year, however, soaring prices for SA’s mineral exports boosted revenues again to 6% above pre-pandemic levels in real terms. And while SA’s debt rose sharply in 2021, it remains at the average for upper middle-income countries.

Despite higher export prices, the economy isn’t helping. GDP remains 0.5% below prepandemic days. Even worse, we have lost 600,000 formal jobs, mostly for lower-skilled workers. This year, soaring food inflation means the cost of living for the poorest households has risen about 2% faster than for the richest.

Faced with this multiplicity of crises, the Treasury has reverted to pro-cyclical form. In 2023, it plans to cut non-debt expenditure by 3% in real terms, essentially using higher revenues to repay creditors. The axe will fall hardest on social grants and public servants’ pay — two pillars of stable democracy in SA.

The medium-term budget foresees a 3% cut in transfers to households in real terms in 2023. The Treasury is desperate to eliminate or at least reduce the special grant introduced for destitute adults during the pandemic. The grant provides R350 a month to individuals with no other income — a tenth of the minimum wage.

Social grants are a secondbest response to SA’s extraordinary inequality and poverty. Still, they are now the only large-scale support provided to adults excluded from the formal economy. The Treasury already tried to end them in March 2021, which surely contributed to mass unrest a few months later. That cost the economy and society far more than the grants themselves.

Despite that experience, in constant rand the mediumterm budget plans a 10% cut in transfers to poor households next year. By 2025, it expects to slash them to 5% below prepandemic days. Yet it forecasts only slow GDP growth, and doesn’t propose any other programmes to expand opportunities for historically excluded people and communities.

It proposes even deeper cuts to public servants’ pay. It expects spending on teachers, nurses and doctors, police and soldiers, who constitute the majority of its employees, to be 7% lower in 2023 than in 2019. That approach in effect downsizes the black middle class and cuts the budgets for all the main public services.

If the Treasury has its way, only infrastructure will enjoy big increases next year. The medium-term budget plans to almost double the budget for public works by 2025. The share of buildings and other capital assets would rise to over 4.5% of total spending, up from 2.5% in 2019. Meanwhile, social grants and remuneration would fall from 52% to 47%. In effect, we are prioritising investment in bricks and mortar over social and human capital. Yet growth, equality and social solidarity require both.

The fiscal crisis does not have easy exits. Big cuts to social grants and remuneration are a lot easier than the painstaking, conflict-ridden and exhausting task of restructuring programmes to address the roots of slow growth and inequality in the economy, social services and infrastructure. It would mean terminating vanity programmes and systemic inequalities that have been entrenched in budgets as long as anyone can remember.

Falling back on big cuts to programmes that benefit the majority of South Africans will ultimately prove counterproductive. As they deepen inequality and undermine social solidarity, those cuts doom long-term economic growth.