/ 22 February 2022

Can harsh fiscal trade-offs still improve agency and social cohesion for South Africans?

South African Finance Minister Enoch Godongwana Delivers Mid Term Budget Speech
Finance minister Enoch Godongwana.(Brenton Geach/Gallo Images via Getty Images)

Amid anaemic growth and spiralling debt, the fiscus finds itself walking a proverbial tightrope. On one hand, the urgency to spur inclusive economic growth is hastened by the worsening of living standards and dearth of opportunities for ordinary South Africans; on the other, debt management continues to eat away at revenues. Despite signs of austerity creeping in pre-pandemic, the task ahead of the treasury is now a challenging balancing act: to consider how best to navigate and implement harsh trade-offs that can still improve agency and social cohesion for South Africans.

As a result of decades of interlocking structural constraints, South Africans, unsurprisingly, still find themselves trapped in cycles of unemployment, poverty and inequality — an enduring marginalisation that has had serious implications for the country’s critical social capital.

In 2021, the Institute for Justice and Reconciliation (IJR) warned that if political institutions remain unresponsive to economic grievances in the years to come, they risk tipping the balance from democratic protest to instability. In fact, in July 2021, the nation witnessed the extremely high price of economic exclusion. Against a backdrop of unequal development, a run-down fiscus and dwindling economic agency, the indivisible objects of social cohesion and economic marginalisation were laid bare.

The underlying weak position of the fiscus, and its inability to boost the economic agency of South Africans, preceeded the 11 days of civil unrest and chaos in July 2021. The past decade has been witness to an erosion of agency among South Africans whose access to basic economic opportunities has been stifled. 

This was emphasised in the November 2021 medium-term budget policy statement by Minister of Finance Enoch Godongwana, who stressed that reform is now a matter of urgency. Importantly, areas earmarked for reform are also conduits for inclusion. Some of the levers expected to expand access to the economy include, but are not limited to, energy supply, affordable internet access, efficiency in logistics and infrastructure development.

Inclusive reform is crucial

At present, there is a pressing need for reform that promotes inclusion as a catalyst for returning economic agency to all South Africans. This basic need is further evidenced by findings from the South African Reconciliation Barometer, a public opinion survey by the IJR, which found that nearly half (45%) of South Africans are dissatisfied with their personal economic power. This helpless admission can be partially explained by the seemingly impossible barriers preventing access to economic opportunities. 

The same  survey found that, when it comes to accessing critical components of goal attainment, about a third of South Africans feel they do not have the necessary access to financial resources (35%), the correct type of education (30%) and the ability to easily reach places to achieve their goals (29%). 

These severe constraints of access not only deny inclusion, but also erode people’s economic agency — a process that, in turn, exposes a population to greater vulnerability to shocks such as economic downturns or the imminent consequences of climate change. This loss of agency has a further consequence: stifled agency creates frustrations that weaken a society’s resilience to withstanding capture by populism and other harmful political forces.

However, easing these burdens through reform and financing is not a simple matter. With 

spiralling debt levels, the revenue to finance-spending priorities has to come from somewhere other than borrowing. In the absence of any prospect for robust growth in the short to medium term, the increased burden could, once again, fall on taxpayers, who are simultaneously shouldering rising inflation and interest rates. These forces have depressed household income and are likely to exert downward pressure on government revenues.

Tricky trade-offs

Amid these pressures, it is unsurprising that the prospect of a greater tax burden does not appeal to South Africans. The Afrobarometer, Africa’s most prominent public opinion survey, found that most South Africans feel that ordinary citizens are already paying too much tax (42%) or about the right amount (35%); only a handful say that people are being taxed less than they should be (15%). Another concern for the treasury to contemplate is that almost seven in 10 people (69%) claim to have difficulties in finding out how the government uses tax revenues. Amid dwindling household income, tax increases risk further depleting agency; it will be interesting to see whether the government takes the route of increasing income and consumption tax.

Constrained by the shrinking fiscal space — whose parameters are defined by a lethargic economy, an impoverished society and the relentless assault of debt servicing costs — the trade-offs must instead pinpoint precise leverage points that create pathways to inclusion that can also unleash multiplier effects. One of several such leverage points is transport — the enduring legacy of apartheid spatial planning, conflated with the poor performance of public-transport infrastructure, has barred South Africans from efficiently accessing economic hubs. This also necessitates that decision-makers consider the high costs to society of the extreme levels of centrality in the economy.

The public purse ought to consider reform that makes the economy a more flexible one, centring around community rather than large state enterprises. To this end, capacitating civil society with the correct resources is not only an enabler for localised nodes of development, but also for rebuilding trust and social capital — critical features of a cohesive and resilient society. After all, it is South Africa’s vibrant civil society that has enabled tremendous resilience and solidarity over the years.

Community or localised development interventions offer a low-cost policy option that can be implemented rapidly. At the same time, localised development creates space for experimentation and innovation — two essential underpinnings of development that are otherwise too costly or risky for large scale or centralised programmes to see through to completion.

The trade-offs ahead will be harsh, but it is essential that fiscal policy is underpinned by a long-term vision for building a socially cohesive and peaceful society. Budget cuts and debt-servicing must not come at the price of social cohesion, but rather enable more flexibility such that agency might once again take hold among our society.

Read the IJR’s analysis of what to expect in 2022 here.