The 2025 budget must empower the poor and end socio-economic exclusion. Photo: Supplied
The recent debates about South Africa’s fiscal budget show there is no consensus on how to define and implement inclusive growth. This phrase is prevalent throughout different strategic policy documents and stakeholders use it regularly. Yet political and policy contestations, especially in the government, about budget policy choices highlight some fundamental divergences.
The market fundamentalist perspective proposes the following measures to attain inclusive growth: decreasing public sector wages, reducing state employee numbers, privatisation of essential public goods, a generic embargo on new taxes and lowering social expenditure. Proponents suggest these measures will place the country on a higher growth path and create jobs. But researched policy evidence counters the underlying economic arguments informing these propositions.
South Africa’s public service is not bloated if one considers the growing population that state employees service. There are 1.3 million workers servicing an estimated population of 63 million. This has significant effects on public goods areas such as health and education. Several accounts from healthcare workers and teachers in public institutions highlight the workplace problems associated with expanding population numbers. Hence, trade unions urge the government to hire more police personnel, nurses, teachers and community health workers. This proposition is aimed at alleviating the service delivery costs associated with staff shortages.
In addition, sweeping generalisations about public sector wages being overly high are not helpful. It is important to break down or disaggregate the wage costs among different categories of state employees to obtain a clear picture. The Institute for Economic Justice research illustrates that public sector wage costs at lower occupation levels have declined because of outsourcing or termination of these posts. This is crucial because these are frontline services that the population requires for meeting basic needs.
Another core proposition supported by market fundamentalist is decreasing the social wage, which the treasury estimates will amount to 60% of total non-interest spending over the next three years. The argument suggests that South Africa is spending too much on social wage expenditure, which is consumption based and not productive.
Fiscal policy research from the Southern Centre for Inequality Studies and NGOs involved in fiscal policy reforms advocacy refutes these claims. Per capita social spending in key areas such as health and education has declined over the years and this has negative effects on important human development outcomes.
Additionally, social wage expenditure is not unproductive or wasteful because it creates demand in the economy and supports infrastructure expansion in several ways. Studies on social grant transfers illustrate this point because beneficiaries spend the money on goods and services in the economy as well as micro-enterprise livelihood strategies. This expenditure can produce additional socio-economic outcomes if policymakers connect it with industrial policy interventions.
For example, my doctoral research findings on women-led food livelihood systems showed how social grant transfers play a crucial role in sustaining home and community gardens. The economic biases informing this wasteful expenditure argument overlook non-wage labour and work livelihood strategies. Our social wage expenditure should be connected with industrial policy imperatives such as creating localised agro-food systems. In simple terms: social grant expenditure should support diversifying the food system, agricultural and retail value chains in communities.
South Africa needs to explore other fiscal and financial policy instruments to augment the national budget. The blanket refusal to explore additional fiscal revenue sources has limited policy options. There is a general agreement that regressive taxation should be avoided. But this must not stop policymakers from exploring other possibilities such as corporate, financial transactions and resource rent taxes.
Studies by the Institute for Economic Justice and Southern Centre for Inequality Studies have provided policy recommendations on expanding the public fiscus using these progressive taxation instruments. These will benefit the poor and socio-economically marginalised citizens in our country. Dr Khwezi Mabasa is part-time sociology lecturer at University of Pretoria and the economic and social policy lead at the Friedrich Ebert Stiftung in South Africa.