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Treasury’s planned budget cuts will to choke the economy

Cutting medication to a patient in the ICU ward in hospital will achieve little besides killing that patient, says the writer. Picture: Ian Landsberg/ANA Archive

Cutting medication to a patient in the ICU ward in hospital will achieve little besides killing that patient, says the writer. Picture: Ian Landsberg/ANA Archive

Published Oct 5, 2023


Solly Phetoe

Cosatu rejects the National Treasury's reckless attempts to impose misguided austerity budget cuts across government in the run-up to the Medium-Term Budget Policy Statement (MTBPS).

The federation is deeply dismayed that the Treasury has written to all state institutions instructing them to slash budgets by up to 15%, freeze all vacancies and infrastructure roll-out programmes.

While we appreciate the very real fiscal constraints facing the state and the need to cut fat and reprioritise expenditure, the solutions offered by the Treasury of slashing expenditure and further decapacitating the state when the economy is in desperate need of stimulus and a well-oiled and capacitated public service, will only serve to choke the economy and further weaken an already enfeebled government and undermine its ability to provide the quality public and municipal services that the working class and the economy depend upon.

What is needed now is to grow the economy. That is the only sober and sustainable path to pay down our worrying debt trajectory. Pickpocketing nurses and underpaying police officers is not a solution.

Cutting the public service wage bill is exactly what the Treasury has been doing since 2020 when then Minister of Finance Tito Mboweni imposed a unilateral wage freeze and since then adjusted the wage bill at below inflation rates.

The narrow fixation of the Treasury on cutting the wage bill is a lazy option and one that will not resolve the multiplicity of crises the country is facing. Underpaying a nurse will not get the trains to run on time. What it will do is encourage the brain drain of skilled public servants, in particular doctors, nurses, teachers, engineers, police officers and others, who will move to better paying and less stressful jobs overseas.

The crisis we are facing is not an expenditure crisis. The wage bill has been stable at 35% of the budget for more than a decade. The crisis is a collapse in company tax.

This is because of the rapid deterioration in the capacity of Transnet to transport mining, manufacturing and agricultural exports and products to their markets timeously.

Mining, in particular, is a major contributor to the state of company taxes and an earner of foreign investment and exchange for the economy.

If the government does not turn things around at Transnet fast, we will face a jobs bloodbath in the mining industry and a crisis of revenue that no amount of pickpocketing from public servants will fix.

If we are to grow the economy and reduce unemployment, and thus increase revenue, the state needs to reduce debt, then the government needs to deal with the real obstacles suffocating the economy, workers and businesses, namely to:

  • Provide additional support to Eskom to reduce and end load shedding and ensure reliable and affordable electricity.
  • Urgently intervene at Transnet and Metrorail to secure and rebuild our freight and passenger railway network and modernise our ports.
  • Stabilise and overhaul dysfunctional municipalities and restore basic services that communities and businesses depend upon.
  • Allocate additional resources to the South African Revenue Service to tackle tax evasion and customs fraud, and conduct lifestyle audits on the wealthy, and thus generating badly needed state revenue.
  • Fill critical front-line service vacancies in the public service, especially the police, National Prosecuting Authority and courts, enabling them to crack down on crime and corruption.
  • Give relief to commuters and the economy by reducing the taxes currently consuming 28% of the fuel price, and place the chaotic Road Accident Fund under administration to lessen its need for fuel levy hikes.
  • Expand the Presidential Employment Programme to accommodate 1 million active participants by October’s MTBPS and 2 million by February’s budget speech to help young people earn a salary, gain invaluable experience and enter the labour market.
  • Enhance the invaluable Social Relief of Distress Grant to recover value lost to inflationary erosion by raising it to the Food Poverty Line and link its recipients to skills and job opportunities.
  • Expedite and not freeze the badly needed infrastructure investment programme.

If the government can show the necessary fortitude and vision and implement these common-sense interventions, the economy can grow and soon meet the 4% growth target. This will set the nation on the path to a prosperous job-creating economy, a capacitated developmental state and ensure the fiscus is set back on a secure path.

Cutting medication to a patient in the ICU ward in hospital will achieve little besides killing that patient.

Workers can no longer afford to live on hope and prayers, while the Treasury experiments with economic theories that have been rejected across the world, including in the industrialised West.

Cosatu is engaging the leadership of the government and the alliance to seek a more pragmatic and sustainable path to rebuilding the economy.

Phetoe is Cosatu’s General Secretary.

Cape Times