The government is faced with the challenge of making budgetary sacrifices to address rising fiscal challenges – however, it is unclear what should be cut off.
During his national budget speech, finance minister Enoch Godongwana announced that this year’s budget included ‘difficult trade-offs’ that would see him having to fund an additional R37.5 billion in expenditure.
One of the most notable factors involved was the public sector wage increase.
After public servants took part in protest action, the government and trade unions in the Public Coordinating Bargaining Council (PSCBC) reached a two-year wage agreement on 31 March.
As per the deal, public sector workers will receive a 7.5% raise in 2023. The salary growth for 2024 will be determined based on the Consumer Price Index (CPI) forecast provided by the National Treasury.
This Wednesday (24 May), Statistics SA revealed the latest inflation numbers showing a slowing of core inflation to 6.8% in April – down from 7.1% in March.
The national budget, however, does not have enough to meet these demands without making trade-offs elsewhere.
“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,” said Michael Sachs, a professor at the Southern Centre for Inequality Studies.
Speaking at a PSG Think Big webinar, he said the government has to operate in a “give and take” framework whereby difficult budgetary trade-offs affect public sectors such as education or healthcare.
Sachs added that over the past five years, government programmes have conflicted with one another, leading to uncertainty. He said that in this uncertainty, the national budget has become less credible.
The professor said the budget is being used more as a negotiating tool than an indicator of the country’s future spending.
“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,” said Sachs.
He said a key example could be the vast increase in spending on higher education, such as universities which led to a trade-off in basic education funding.
“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 needs of less vocal – and less empowered – primary school and childhood development beneficiaries,” Sachs said.
“The state’s budgetary decisions are beginning to reflect the simple logic of politics, especially given the fast approach of the 2024 elections.”
Sachs believes that the budget is suffering from an ongoing failure of political leadership to lead the country in a different direction from that which is simply mandated by populist impulses.
He said that what is needed is candid and clear information on what budgetary trade-offs would mean for stakeholders, especially those in the private sector.