“The SACP has consistently warned of the vicious cycle that neo-liberal austerity undertaken in the name of ‘fiscal consolidation’ will create in a context of economic stagnation.”
14 September 2023
The South African Communist Party (SACP) denounces the National Treasury’s attack on public service bargaining. In its attack on public service bargaining, the National Treasury did not budget for salary increases for public servants in order to force national departments, public entities and provincial governments to cut budgets for other priorities. This comes out clearly in a widely circulated leaked National Treasury letter dated 31 August 2023.
The SACP is gravely concerned at signals spearheaded by the National Treasury, indicating that it intends further tightening austerity. In the letter, the National Treasury is calling for a freeze on new personnel appointments and procurement for new infrastructure development projects, among others.
While we understand the challenges that a stagnation-induced anticipated under-collection of revenue will create for the funding of public programmes, we do not agree that neo-liberal austerity is an appropriate response any more than it was when we were confronted with several other similar challenges in the recent past. The SACP has consistently warned of the vicious cycle that austerity undertaken in the name of “fiscal consolidation” can create in a context of economic stagnation.
In a policy document tabled at our 17th National Congress held in July 2022, we argued that:
“Austerity should not be confused with trimming perks for senior officials or ensuring greater value for money by cutting rent-seeking or tackling corruption. Such measures should all be part of normal, prudent management of public funds which we would support. Neo-liberal austerity involves as its defining characteristics (1) the prioritisation over all else of the achievement of predefined macroeconomic balances and ratios deemed by the neo-liberal playbook to be universally applicable everywhere and under all circumstances and (2) the achievement of these ratios by cutting government expenditure even to the extent of cutting redistributive programmes and withdrawing from any real stimulus. Experience in many jurisdictions has shown that austerity often unleashes a vicious cycle. Cuts made to restore fiscal numbers promote stagnation. Stagnation reduces revenue collection, which leads in turn to more cuts. The alternative, we suggested, would recognise that an effective recovery programme – and particularly one targeting greater inclusivity and cutting unemployment and poverty – would generate more resources for the fiscus and that this rather than austerity should be the preferred route to fiscal sustainability”.
In the past, we have had no objections to targeted cutting of “wasteful expenditure”, but we expressed our concern at the impact generalised austerity has had on economic recovery as well as the resourcing of potentially important developmental or pro-poor programmes.
One specific example was the better designed and enhanced public employment programme: which had its budget cut by 10% in one of the earlier “rounds” of austerity.
Another is the parsimonious attitude to the Social Relief of Distress Grant, which has not had any increase and more recently has seen the piling up of “red tape” in an ill- disguised attempt to reduce the number of applicants.
More generally, we have lamented the increasingly serious and evident underfunding of potentially counter-cyclical or transformational programmes such as infrastructure development and Industrial policy support among others.
The circumstances we find ourselves in have added an additional dimension to the multiple crises of social reproduction facing the working-class and poor – a cost of living crisis, whose impact falls disproportionately hard on food items consumed by lower income people. While the original causes of the crisis of stagflation our economy is currently enmeshed in are global, the fact is that our performance is falling way below those of peer countries. Systemic domestic economic policy failure dating back to when the government imposed its neoliberal policy called GEAR in 1996 in our democratic dispensation is responsible, besides the impact of the global situation. Starting in that year, unemployment even by the narrowest definition that excludes discouraged work-seekers sky-rocketed to crisis-high levels of above 20 per cent and since worsened, never to return to below that level.
After the global COVID-19 pandemic struck in 2020, levels of unemployment, poverty and inequality all worsened than they were at the time of the “crisis before the crisis” of the COVID-19 pandemic and remained amongst the highest in the world. Austerity under such circumstances could only further depress the already stagnant economy and deepen the crisis of reproduction confronting the working-class and poor, the majority of our national population.
The other side of the coin of neo-liberal austerity is unrealistic hopes that “partnerships” with profit-seeking capital will fill gaps created by public sector underfunding. “Structural reform” has come to mean in South Africa liberalisation of network sectors served by public utilities to expand space for profit-seeking private capital and flirtation with tools like “blended finance” where government gives extensive guarantees both against default and for minimum yield in the hope this will direct profit seeking funds to infrastructure development. There is little evidence that the considerable effort put into this endeavour has been any more than the “high cost/ low yield” option it has been in many other jurisdictions.
Instead of acting as the enforcer of cuts reinforcing stagnation and leading to yet more cuts, the SACP believes that the central task of the National Treasury as administrator of fiscal policy is to mobilise the additional resources required to support key developmental programmes both on and off budget. This means it can no longer afford to reject out of hand (as has been the case up to now) the myriad of proposals put forward by many heterodox economists. This includes tax proposals. In a country that is universally recognised as one of the most unequal in the world and which is also grappling with extraordinary levels of poverty and inequality, it is surely not too much to be considering levying or increasing wealth taxes, targeted taxes on luxury goods (rather than a general rise in VAT) or taxes on at least some of the least productive speculative financial transactions or on dividend payments. Off budget, we need to be firmer in efforts to steer part of existing funds towards developmental priorities, particularly in a context where seeking to do this via building “partnerships” with profit seeking institutions is clearly not delivering adequate results. Prescribed assets, community reinvestment type regulations and various levies all need to be part of the tool-box in this regard.
Finally, we need to be intensifying efforts to close loopholes to aggressive tax avoidance and evasion and illicit capital flows. This was promised in the “Economic Reconstruction and Recovery Plan” with little evidence of effective implementation. Illicit capital outflows from South Africa are significant. According to one recent study, they resulted in losses totalling US$185,5 billion between 1995 and 2018. The biggest part of this was US$ 133,5 billion arising from the mis-invoicing of export earnings and imports.
The SACP is deeply concerned at the apparent inability of the ANC-led government to chart any course out of the vicious cycle of cuts reinforcing stagnation leading to more cuts. We will be reaching out to like-minded organisations and individuals as part of building a popular left front in support of a people centred inclusive alternative to both neo-liberal austerity and neo-liberalism in general.
Issued by Alex Mohubetswane Mashilo, National Spokesperson, SACP, 14 September 2023
