‘No cash’ for ANC’s expensive big plans
Public service jobs and poverty relief on the line, party is told
● As the government’s cash crunch intensifies, the ANC has been told that the state cannot afford a basic income grant (BIG) now, and that public service jobs may have to be culled if R19.6bn in outstanding wage increases due to them is to be found.
The tough message was given by finance minister Enoch Godongwana and top officials at a party lekgotla.
A leaked copy of an ANC economic transformation committee document entitled “Stabilising the Economy” — which was presented at the governing party’s three-day lekgotla last weekend — paints a bleak picture of the pressure on public finances, requiring a tightening of belts and increase in efforts to grow the economy.
The government is under pressure from labour, civil society and sections of the ANC to implement a BIG as unemployment surges and the lockdown extends hardships. However, the ANC has been told to shelve this demand for now as there is no money to fund such a grand scheme.
The state needs to urgently find R73.4bn to honour its commitment to public sector workers, and avoid the collapse of key state institutions.
Urgent spending needs include:
• R19.6bn to cover wage increases;
• R15bn to settle student debt;
• R5bn to rescue the Land Bank; and • R3.2bn to recapitalise Denel.
ANC delegates to the lekgotla were also informed that it would cost R10bn to get a state bank off the ground. The creation of a state bank was one of the resolutions adopted at the party’s conference at Nasrec in 2017.
In his presentation, economic transformation committee head Godongwana spelt out the difficult re-prioritisations and trade-offs that must be agreed to by all if the government is to meet existing spending obligations, stabilise the fiscus and avoid a full-blown crisis.
As a measure to contain the burgeoning public sector wage bill, the committee proposed a possible trade-off with public servants that could result in a “head count reduction” in exchange for settlement of outstanding pay increases. The rest of the money will be re-prioritised from underspending on infrastructure projects.
“Wage bill and other demands on the fiscus have increased. The wage bill costs an additional R19.6bn in 2021/22 for a cash gratuity to qualifying public servants. It is proposed that this additional wage bill cost be funded from projected underspending of R2.3bn from the infrastructure fund and R17.3bn as new money in exchange for a head count reduction plan.”
The government and public sector unions reached a wage deal in July that includes a 1.5% pay progression for all qualifying civil servants, and a one-off allowance backdated to April ranging between R1,200 and R1,700 for all civil servants. This cash gratuity is due to be paid tomorrow.
Unions and the government are fighting it out at Constitutional Court after the government decided not to honour in full the last leg of a three-year wage agreement signed in 2018.
The head count reduction proposal is contained in the presentation, but the Sunday Times understands from a number of attendees that this was not discussed in detail. Contacted on Thursday, Godongwana said he could not confirm or deny the contents of the document, and would not comment on discussions at the lekgotla.
An insider who attended the economic transformation commission session said Godongwana indicated that for all labour’s demands, there would have to be trade-offs.
“What Enoch was quite clear on was that, whatever labour’s demands, there must be a trade-off. Where is the money going to come from? So, if we put money for the basic income grant, then we must cut somewhere else,” said the insider.
Labour would push back on any suggestions of reducing the number of public servants, the insider said. The Sunday Times understands that in the commissions some of the attendees actually called for the employment of more civil servants, especially in the police, health and education.
Mugwena Maluleke, boss of teacher union Sadtu — who is also the convener of Cosatu’s public sector unions joint mandate committee — declined to comment.
Public service & administration minister Ayanda Dlodlo, an ANC national executive committee member, also would not be drawn on discussions at the lekgotla, saying: “The outcomes of the lekgotla will be ventilated further so that there is synergy in thinking and application across all clusters and commissions.”
When discussions at one of the commissions turned to the issue of a BIG, it was suggested that it be put on hold for now. “We said the ANC must not expect too much, there’s no money,” said a member of the economic transformation committee. “Don’t give us a new shopping list; we have a lot that we must cover. Focus must be on the implementation of the [economic recovery plan], but understanding the difficulty in terms of the fiscus.
“A BIG is unaffordable right now. There’s no ANC decision on it; we said it’s a principle, but it must be affordable.”
The National Treasury estimates that a BIG at the food poverty level of R595 a month would cost the country R189bn a year. This is money that would have to be found from other spending priorities or borrowed at great cost and risk to the fiscus.
A senior government official who was present at the lekgotla said there were honest discussions about the dire state of public finances, what was affordable and what the state could not commit to without trade-offs. “If government agrees to all the spending demands, it means we might have to cut money from everyone — the police, social grants, health, education. If not, it would mean increasing the budget deficit, which would be irresponsible.”
A source who supports the BIG said it was decided that more engagement was needed on it. “The decision was that more costing must be done … to see what’s affordable, when is it affordable and is it a question of extending the R350 grant beyond March [2022], is it a question of linking it to the food poverty line?”
Economist Duma Gqubule said the economic transformation committee’s report to the ANC lekgotla had failed to mention that there is more fiscal space as a result of a rebasing of GDP, which means the economy is 11% higher than it was thought to be before, and debt-to-GDP ratio has dropped from 80% to 71%. A commodity windfall has also pumped more money to the state.
“It means we could have a tax overrun of R150bn,” he said.
Gqubule said studies on the feasibility of a BIG found that much of the cost would be paid back by people who are above the income tax threshold. He said because the BIG is a universal grant that is paid to everyone, the government would recoup R50bn from taxpayers if it is set at the food poverty line of R595. If it is set at the highest food poverty level of R1,268, the government would get R106bn back from those who are above the income tax threshold.
“People must look again at the cost of this thing. I’m willing to bet there will be some form of [BIG] next year,” he said.
In resolutions emerging from the lekgotla, the government was urged to consider “extending further support to the unemployed and those who are structurally marginalised, possibly in the form of the extension of the Covid-19 [social relief of distress] grant, targeted food poverty line support or a [BIG]”.
Economist Lumkile Mondi said while there was no money to fund failing state enterprises, he was in support of grants to assist those trapped in the cycle of unemployment and poverty.
He said the grants could be funded through issuing government bonds that can be snapped up by retirement funds which have trillions of rands in reserves.