Dick Forslund
The signals in President Jacob Zuma’s State of the Nation address (Sona) were clear. Finger food dinners provided to MPs are to be cut to make the public prepared for cuts in the main dish. The Sona speech was the “best co-ordinated collaboration between government and business in 22 years of democracy”, according to the investigative journalists of Africa Confidential.
Fine then?
The only really existing alliance in the country is about to be saved – the alliance between corporate business and the government; the alliance that faced a political breakdown after the chaotic sacking of former finance minister Nhlanhla Nene.
Some of the measures planned have leaked. Or is it rumours? Will there be a social grants freeze? Will the consumer tax VAT go up from 14, to 15 or 16 percent? This is what the Davis Tax Committee has recommended. Every percentage point increase of the VAT is supposed to add R15 billion to the budget.
For the working class and the poor, this means so called “austerity”. Well, the new/old finance minister has ensured there will be no austerity, meaning no actual cuts in public service spending and, one must hope, no increase of VAT.
To see tomorrow is to believe. In higher education, an austerity regime has in fact been in place since at least 2011, whether MPs are aware of it or not. They voted for it again when they voted for the 2015/16 Budget, eight months before the student uprising.
If the government makes cuts in public service spending now, it will not only push a recession closer and further increase unemployment. It is also a policy for political instability. It is economically wrong and the people don’t want it.
When checking for the real value of money spent on education using the consumer price index (CPI), one is led to think that real spending per student went up by 15 percent between 2011 and 2015. But price increases on goods and services in higher education have been around 9 percent on average a year for a decade.
Statistics SA’s tertiary education inflation index reveals what triggered the student revolt. In February 2015, there had in fact been a 15 percent cut in real resources per student since 2011. The response was higher fees. And whether they knew it or not, the MPs last year voted to continue to cut R24 out of every R100 spent per university student up until 2017/18, compared to 2011/12. Then came former finance minister Nene’s midterm Budget in October. Outside Parliament the shock grenades were exploding.
The Budget plan for post-school training and education in the midterm Budget is a politically impossible plan. The coalition of students and university ground staff is a guarantee of that. They are Minister for Higher Education and Training Blade Nzimande’s “credit ratings institute”, whether he likes it or not.
The president promised a commission in Sona to sort out higher education. He should have announced a three-year plan for free universal education, financed by taxation.
True, in one of his first Sona speeches, he declared “South Africa is not a welfare state”, ensuring pundits the public sector will remain small, comprising 23-27 percent of the economy (GDP), just as it did before 1994 when the public service was mainly for whites.
This is impossible when public sector services are to be expanded equally to all. Unless you break promises, like the old promise of free education.
Beside general “decolonisation”, the students are demanding socialist reforms in higher education, whether or not they say or think it. This is what an end to fees and outsourcing means. The question is if this also is what the country needs, in public health and education and in general public sector service delivery.
Should the credit ratings institutes decide what the country needs, as they are doing right now, holding a gun to the head of the government? Facing credit ratings blackmail and the global capitalist crisis, the government should gradually turn away from the “free” financial markets for its borrowing needs. It should turn to the huge Public Investment Corporation (PIC) pension fund, which it owns and where it can borrow at a regulated interest rate.
Every decrease of the interest rate by a 0.5 percentage point on the government debt saves R11bn to R13bn a year.
The plan to cut the Budget deficit from 3.8 to 3 percent to GDP should be scrapped.
At the current exchange rate, the eight reactors announced in Sona will cost R1.8 trillion. This equals the whole (PIC) pension fund, before price collusion, bribes and delays. Local investments in renewable energy can employ youth and guarantee students of technology training during their studies and jobs after exams.
Despite the drought, the government is in climate change denial.
To the massive coal mining and coal power build-out, uranium mining is now to be added, escalating the produce of radioactive waste for which thousands of years of safe storage is needed. It is an unsolvable worldwide problem.
Facing the crisis and more mass unemployment, the government should intervene to defend and create jobs. Sales of unprofitable mines is an opportunity to run them as non-profit enterprises.
Giving them to black capitalists and to continue with profit maximisation is not broad-based BEE.
The freeze of vacant posts in hospitals and schools must be lifted. Vacancies should be filled. Do provinces and local governments pay for employees sitting upon each other lifting the same papers? Redeploy them as assistant nurses, social workers or plumbers.
Independent audits are needed, but don’t buy that service from KPMG. Engage affected communities instead. Corruption in local governments is fed by outsourcing and procurement.
Pre-emptive maintenance (like fixing robots before they break), housing and water programmes should be the responsibility of municipalities. It is time to start insourcing, following Wits, where it is on its way. Any moves to the left will of course be met by a currency trading reaction. A progressive government would regulate capital flows. It could start by curbing currency trading and foreign financial investments with a “speed bump” of six months, as the Malaysian government successfully did in 1998 when protecting the currency.
The much-hated inter-company transfer pricing (R56bn in cross-border non-goods payments in 2011, according to Davis Tax Committee) should face a new a “transfer pricing VAT”. Why not set the transfer pricing tax at 14 percent for a start?
Food inflation is expected to rise above 10 percent this year. Don’t provoke people further by increasing the 14 percent consumer tax VAT. Without 15 years of routine political tax cuts, the personal income tax would today give R180bn more in revenue, completely changing where the government is today.
In 2005, the top tax bracket was lifted by 33 percent when inflation stood at 4 percent. Restore taxation on comfortable lifestyles to what it was in 2004. Nobody, besides cry-baby economists, complained.
Freeze the tax brackets for a number of years. Allow inflation to gradually restore taxation of the small middle class and the rich. This would give more than R30bn in revenue in three years. At the present level of tax dodging, a new tax bracket for incomes above R1m would give more than R5bn in revenue.
Decolonisation of higher education needs an economic base, or it will not happen. What the middle class lose in slightly higher taxes, they will win several times by not paying fees for their youngsters.
There are alternatives to austerity if there is political will.
Replace the alliance between the government and big business with the unity of the workers and the poor. Following the lead of students and outsourced university staff; this is the alliance that should guide economic policy and budgets.
l Forslund is an economist and researcher at the Alternative Information and Development Centre (AIDC) in Cape Town