Warning over Treasury’s plan to save South Africa

 ·24 Sep 2023

National Treasury is trying to reign in spending, but government officials are not too keen on the plan.

There has been speculation that South Africa will introduce widespread budget cuts as the country faces a revenue shortfall and a wider-than-expected budget deficit.

Although the full scale of these changes will only become known when Finance Minister Enoch Godongwana tables the mid-term budget on 1 November, it was reported that Treasury proposed several ideas to President Cyril Ramaphosa to mitigate the looming crisis.

These proposals included:

  • Increasing value-added tax by 2%, closing programs,
  • Reducing or merging the number of government departments and state-owned enterprises,
  • Managing the public-sector wage bill
  • Reforming the skills development levy.

However, as reported by the Sunday Times, Public Works and Infrastructure Minister Sihle Zikalala said that Treasury’s proposal to cut his department would ultimately create more work for other departments and lead to job losses.

“Most departments have primary mandates, and it’s not just about managing the building you are in. The police, for example, need to work on protecting citizens, dealing with crime and ensuring that criminals are successfully prosecuted,” Zikalala said.

“If you say they must now look after their own properties, you will be adding a responsibility. So there must be a discussion on that. I am not saying we must not, but one thing that public works should own up to is that it has not optimised its capacity.”

“Public works must optimise on the infrastructure that we have. That’s why we are saying let’s run the programmes that are going to help the government going forward, even to generate income.”

The minister added that the private sector can either use or buy government buildings to generate income.

He said that scaling down programmes, such as the Expanded Public Works Programme (EPWP), to fund the R350 Social Relief and Distress (SRD) grant – which Treasury has actually called to cut in its entirety – will result in job losses.

“Therefore, it is important that we structure the EPWP in a way that is massive and makes an impact. I think there must be a focus on economic growth and protecting those projects and programmes that are creating job opportunities,” the minister said.

His comments echo the ANC’s strong opposition to the cuts, with many questioning how the party can cut spending ahead of a national election. Unions have also threatened to strike if the cuts go ahead.

“We think the Treasury proposals on a freeze on vacancies, reducing the headcount, cutting departments, cutting programs, is going to collapse the capacity of the state,” said Cosatu spokesman Matthew Parks.

Other problems with the plan

Speaking with Newzroom Afrika, Duma Gqubule from the Centre for Economic Development and Transformation said that Treasury’s cuts will prove counterproductive.

Gqubule noted that cutting spending will hurt GDP growth as the government, including state-owned enterprises, accounts for 40% of GDP.

If you cut (spending) so deeply, it reduces GDP, it reduces the tax revenue, and it results in a higher debt ratio,” he said.

“A national budget does not work like a household budget. If you and I cut spending, we save. For the government, it’s almost like a self-defeating purpose.”

He also questioned Treasury’s opposition to the SRD Grant, which only makes up R35 billion of the government’s R2.2 trillion in spending – roughly 1.5%.

He argued that Treasury is using scare tactics by suggesting that the program, which assists 8 million people, can be terminated shortly before an election.

There have also been concerns over the constitutionality of a new “financial law” that will introduce compulsory austerity measures if the country hits a specific debt size without consultation with the government or social society.

“I believe that Treasury has crossed a line. These proposals will collapse the economy, and they will also result in social unrest,” Gqubule said.

Read: This job in South Africa is in danger

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