Govt’s cost-cutting plans ‘will hit poor South Africans more’

Government’s fiscal belt-tightening – as proposed by National Treasury – will affect the poor more than anyone else in the country, according a political analyst.

Just recently, Treasury suggested implementing cost-cutting across government as it prepares to table the medium-term budget policy statement – which received backlash from experts, who noted that poor South Africans would be the only ones bearing the brunt.

Furthermore, Treasury also suggested the increase of value-added tax (VAT) in order to sustain the R350 social relief of distress grant and potentially increase it, according to the Sunday Times, despite the Competition Commission last week revealing that South Africans were overpaying for certain food items, even though inflation had come down significantly.

Political analyst Arthur Shopola said the Treasury approach was to be expected from government bureaucrats who were concerned with the big financial picture, rather than on the development of poor people, “because if you can look at that instruction it cut costs across the areas where people were still looking government to deliver the most”.

He added: “They said infrastructure development projects should stop, and that government should not employ anymore unless of crucial importance, and who does it affect?”

Treasury had not adopted a pro-poor stance, he said.

“They make decisions that are not really taking into cognisant the conditions of people in this country, in particular, the poor people, and the state of development in this country.”

Shopola noted that none of the solutions proposed were tackling issues the poor were facing.

“The policies in place generally are not forthcoming in terms of solutions; we have an issue of corruption. Two; less political will to drive those policies. But three, the most important, is that our policies are mostly neoliberal in their design,” he added.

“Meaning that they are not really designed to create economic conditions where every one of us can be accommodated, but they are designed to create conditions where only a select few in the business can benefit.”

In her weekly newsletter, Business Leadership SA director Busi Mavuso noted that Treasury was stuck between a rock and a hard place as SA continues to face a difficult moment for government’s fiscal management.

“Government revenue is suffering the reality of low economic growth in which tax collection has been less than expected,” she said.

“On the other hand, that low growth has increased pressure for social grants that can relieve the poverty trap many in our country find themselves in.

“The challenge is that government can’t simply open the spending taps. That would directly lead to an explosion in new debt issuance at a time when rates are high and market appetite for more exposure to the government is low.”

Mavuso said she would support the expansion of social grants if it can be done sustainably.

“At times of strong fiscal performance, like before the financial crisis in 2008, the state did massively expand welfare spending without damaging business confidence,” she said before noting it wasn’t a good time economically for that suggestion.

Meanwhile, Wandile Sihlobo, chief economist at Agricultural Business Chamber, said although the government voiced concerns about the higher food prices, and instructed the Cabinet’s economic cluster to implement a food security plan to cushion consumers, “we have yet to see the government’s strategy and approach”.

“But it is worth highlighting that South Africa’s consumer food price inflation has started to decelerate from the high levels of 14% we saw in March.

“In July, consumer food inflation was recorded at 10%, from 11% in the previous month. The product prices underpinning this deceleration in recent months are primarily bread and cereals, meat, fish, and oils and fats, which are crucial for low-income households.”