National Budget trade-offs reflect the ‘simple logic of politics’, says expert

Johannesburg - State institutions need to do a better job of outlining the cost of true economic reform, particularly for civil society, public servants and the private sector.

Earlier this year, Finance Minister Enoch Godongwana announced that this year's national budget involves numerous 'difficult trade-offs', to address rising fiscal challenges which will see the Minister having to fund an additional R37.4 billion in expenditure. According to Michael Sachs, adjunct professor at the Southern Centre for Inequality Studies, one of the most significant of these trade-offs involved the public sector wage bill increase.

Sachs says that in reality the salary increases for public sector workers like teachers, healthcare workers and police amounts to just above 3%, far below the rate of average consumer price inflation. In an environment characterised by rising living costs, this represents a significant real drop in public servant salaries – and not for the first year. Nevertheless, the settlement was far higher than treasury's budget, pointing toward a very difficult dilemma.

Sachs was speaking at the most recent Think Big webinar hosted by PSG and facilitated by award-winning journalist, Alishia Seckam. He leads the Public Economy Project, a research program on fiscal policy and public finance, lectures at the Wits School of Economics and Finance, and serves as Deputy Chair of the Finance and Fiscal Commission – an independent, advisory body that serves the South African government.

Sachs shared his perspective on the "give and take" dynamic within the national budget, with specific reference to the impact of trade-offs for South Africa's education and healthcare systems. Given that the South African economy has remained in a state of decline and stagnation for more than a decade, the state's ability to meet its commitments will be greatly undermined if the resource base that supports the economy continues to decline.

Sachs points out that over the last five years, government programmes have conflicted with each other, causing a lot of uncertainty on what their policy is. In the context of this uncertainty, the National Budget has become less credible, and it is being used as more of a negotiating tool, rather than an indicator of the country's future spend.

But pandering to the demands of various factions across the economy presents a significant hurdle to implement the trade-offs that are necessary to stimulate economic growth while also addressing some of society's most pressing issues.

According to Sachs, one key example can be found in the huge increase in spending on higher education, specifically targeted at universities. This however resulted in a trade-off with South Africa's basic education system and meant less support would be available for early child development. According to a recent study, over 80% of grade 4 learners cannot read for meaning in any language.

In light of this, the decision to allocate more resources to higher education suggests that the state is prioritising the needs of vocal constituencies, such as university students, as opposed to the r the needs of less vocal (and less empowered) primary school and childhood development beneficiaries.

This decision, therefore, as Sachs suggests, is indicative of the fact that the state's budgetary decisions are beginning to "reflect the simple logic of politics," especially given the fast approach of the 2024 elections. It is, in his opinion, a symptom of the "ongoing failure of political leadership to lead the country in a different direction from that which is simply mandated by populist impulses."

What is needed is for political leaders to provide candid and clear information on what these trade-offs will mean for stakeholders at every level of society, especially that of the private sector. Many of these trade-offs will necessitate making "painful sacrifices," and will undoubtedly require the state to prioritise its brokering role and absorb the related risks, even in the face of very real threats to the careers of politicians and certain leaders of the state.

Without these concessions, reforms will be ineffective, and the local economy will be unsuccessful in lifting itself from its current state of stagnation until forces emerge that are prepared to unlock this political jam. And, at the most fundamental level, budgetary decisions need to address the major problem of inequality in South Africa.

Sachs concludes that "what is needed is for the state to become more transparent about the material costs that are required to build a more equitable society. Furthermore, the private sector needs to become more willing to go beyond talking about contributing skills and capacity and be more vocal about the compromises that will be required on their part in affecting real, meaningful change."