Gordhan proposes cuts to social spending
Finance Minister Pravin Gordhan dropped a bombshell in the ANC when he proposed a cut in social spending as one way government could cut costs amid an increase in economic difficulties.
Five ANC leaders who attended the annual ANC lekgotla told the Mail & Guardian Gordhan had listed eight areas for consideration during his presentation on the state of the economy and ways in which spending can be cut to contend with a widening budget deficit.
Social spending – the lynchpin of ANC policy and the basis for much of its previous election campaigning – was among them.
Approached for confirmation on Thursday, Gordhan’s spokesperson Phumza Macanda said the M&G should send her the finance minister’s lekgotla presentation before she could respond. The general questions asked by the paper, she said, would be answered by Gordhan’s crucial budget speech in February.
But in an emailed response to questions, received by the M&G after deadline Macanda said:
“There will be no impact on the poor. The key issue is how we get a new growth dynamism into the economy with consensus among government, business, labour and social partners.”
She also sent additional data showing the increase in social spending that government has made in recent years.
Social spending includes money spent on basic education, health, post-school education and training, local development and social infrastructure and social protection, namely grants.
The total social spend has risen from around R956-billion in the 2012/2013 financial year to over R1,1-trillion in 2014/2015, and represents some 63% of total budget expenditure.
Some officials in the ruling tripartite alliance were loathe even to confirm the presentation had taken place. South African Communist Party (SACP) deputy general secretary Solly Mapaila refused to comment, saying Gordhan’s presentation had been confidential.
But others gave a glimpse of the intensity of the debate the presentation sparked, and particularly the anger of labour federation Cosatu and the SACP, which were represented at the meeting.
Speaking to the M&G on Thursday, Cosatu president Sdumo Dlamini said, although Cosatu welcomed Gordhan’s presentation as an attempt to curtail excessive government spending, the federation did not support his call to cut social spending and freeze salary increases.
“As Cosatu, we understand our economy is in a very difficult space. We understand the economy is not doing well. We welcomed the presentation. It is echoing the call that the government should curtail excessive spending on luxury stuff like the buying of fleet [fancy cars for Cabinet ministers]. What we don’t support is a call that workers should be expected not to demand increases. We don’t think it is ... [fair] for workers who are facing the effect of slow economic growth. We would not support a call to cut social spending. This will mean even services provided to people must be reduced. It will mean you reduce the number of people you employ. It means you can’t employ more people,” said Dlamini.
He insisted that government should stick to the three-year deal signed with public-sector unions last year, which resulted in an effective 10.1% increase in the wages and benefits of government employees, well beyond the inflation-linked increases the state had budgeted for in the February 2015 budget.
ANC secretary general Gwede Mantashe said the party would not support the move to cut back on social programmes because it would create a crisis in the country.
SACP spokesperson Alex Mashilo reiterated the party’s position that poor people must be protected.
“Its importance cannot be over-emphasised in ... the context where many workers earn meagre wages or are unemployed, generally live in poverty and cannot afford basic necessities of life, for example, access to quality healthcare, higher education and technical training, housing and other material and cultural needs. Cutting social spending will amount to sentencing most of them to social death,” said Mashilo.
In his opening and closing speeches to the lekgotla, President Jacob Zuma painted a grim picture on the state of the economy and said the government was left with no choice but to spend carefully.
But not everyone interpreted that warning with the same seriousness as Gordhan. “It is clear the situation is difficult, but certain things can be delayed,” said a senior SACP leader, who asked not to be named, suggesting that unspent money government departments returned to the treasury could plug budget gaps.
Other areas of concern the finance minister listed in his presentation included a cut in salary increases in the public service, reducing wasteful expenditure and the use of costly consultants by various state institutions.
Observers have suggested that the February budget would have to include a hike in taxes to balance the books, a move that would be generally unpopular ahead of local government elections.
Meanwhile, the Reserve Bank’s monetary policy committee announced a 50 basis point increase in interest rates on Thursday, saying it was forced to respond to the inflationary outlook facing the country.
Social grants, wage bill put strain on coffers
South Africa is spending far more than it is earning and international ratings agencies are keeping a close eye on upcoming national budgets – with the cost of borrowing for crucial infrastructure projects by the likes of Eskom in the balance.
In the 2015 budget, the government allocated R778-billion to social services – which includes spending on health, education and social infrastructure, as well as child, old age, war veterans’, disability and care dependency grants.
In October, then finance minister Nhlanhla Nene said the number of people receiving grants was expected to reach 18-million by early 2019, and that R13-billion was needed to keep up with the increase in beneficiaries and the effects of inflation.
Meanwhile, rising electricity prices and population growth have put pressure on the ability of municipalities to fund free basic services for low-income households. This saw a budget allocation of an additional R6-billion to help municipalities cope.
The government’s other big expense is the civil service salary bill. In the medium-term budget, Nene revealed that meeting the bill would require R64-billion over the next three years. By October, the salary bill stood at R486.2-billion, set to rise to R569.4-billion in 2017-2018.
According to last year’s October adjustments budget, the government’s gross debt for 2015-2016 was estimated at 49% of gross domestic product.
Note: This story has been updated to include responses from the national treasury received after the print publication deadline.