Guest Column

Is budget aligned with social justice?

2018-02-25 06:05


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Social Justice Day was a day before Finance Minister Malusi Gigaba delivered the budget speech this week. It was the launch of our country’s Social Justice M-Plan by social partners including the Thuma Foundation, Khulisa Social Solutions, Constitution Hill and Stellenbosch University.

The budget came in the middle of euphoria as the country continues to rest on the pedestal of hope following President Cyril Ramaphosa’s state of the nation address (Sona), which promised to re-anchor South Africa in the constitutional dream and founding values.

Widely applauded as a well-executed balanced exercise, Gigaba’s budget speech had a number of critics. There were those who thought there were good features in it, but also a number of worrying provisions.

The encouraging features of the budget include the huge investment in social sector programmes that advance human rights, particularly socioeconomic rights. Among these are investment in small, particularly start-up enterprises, as the backbone of economic growth and job creation. The goody bag includes education, social grants, health services – mostly the National Health Insurance – and infrastructure development. It was particularly good that the budget speech settled the certainty required regarding the funding of free tertiary education, including where the money will come from.

There was a lot of resonance with my Twitter posting just after the budget speech, which said: “A sober question we need to ask is whether the budget as announced is consistent with the commitment to eliminate poverty and inequality and whether it has the unintended effect of exacerbating poverty and inequality thus undermining social justice.”

Four of my concerns are worth noting. The first is the social justice reconcilability of increasing value-added tax (VAT), which is a regressive taxation instrument. The second is the apparent failure by the executive to lead by example regarding belt-tightening. The third is the budget’s focus on social welfare as opposed to social development. The last is no clear investment in corruption-busting and institution-strengthening in response to the near brink of catastrophe experienced in the past few years and chapter 14 of the National Development Plan (NDP).

There is little disagreement that VAT treats everyone the same regardless of disparate circumstances. Similar treatment of people in disparate circumstances has long been identified as one of the factors behind the growing inequality and poverty levels in societies locally and globally. That some standard household items are excluded from VAT does not make it progressive as the exempted items are bought by all, though the poor might be likely to spend more on them.

If it is true that VAT treats rich and poor people the same, with the social effect exacerbating pre-existing inequality, this should be a source of concern.

In his Sona President Ramaphosa conceded that poverty and inequality have been growing since 2009. Stats SA says that more than 50% of the country’s people live in poverty, with 33% living in extreme poverty.

We are also told that one in every three people is unemployed and one in every two young people is unemployed. Anecdotal evidence shows that in some communities unemployment is almost 100%.

This can’t have resonance with our Constitution, which commits the country to the achievement of equality and the advancement of social justice. South Africa committed itself to the UN Sustainable Development Goals, which place emphasis on the elimination of poverty and inequality by 2030.

The country’s NDP also places the elimination of poverty and inequality at the centre of the country’s inclusive growth and development quest targeting 2030.

A number of economists interviewed on TV and by newspaper reporters since the budget was released concur that VAT is bad news for the poor and the advancement of social justice.

But not everyone agrees. Rian le Roux, with whom I shared a platform at the Old Mutual Investment Group Roadshow, argues that whatever is lost by the poor from being treated the same as those with superior means is offset by gains in social assistance benefits, such as the old age, disability and child grants and the funding of socioeconomic rights services, such as education.

I must say that I am not convinced and communicated my scepticism to the colleague, pedestrian as my view may be given that I’m not an economist.

First, not every poor person receives social grants or free education. Second, if the poor are going to pay for poverty alleviation as much as the rich, how do you reduce the equality gap? Think about the small and microbusinesses, the expenses of which will instantly go up by 1% because of the VAT increase. What about all the Gogo Dlaminis who are not on any grant programme. Their VAT pay won’t, as argued by the finance minister, be offset by the grant increase.

A class-advantaged gentleman I spoke to during the budget speech argued that income tax offsets the VAT harm as it taxes the rich more.

This is cold comfort because the budget was released in the context in which inequality and poverty are growing. Le Roux advised that I get the data on expenditure by the poor and conduct an evidence-based analysis and advise Treasury on the outcome. I agreed to do so with the help of colleagues at Stellenbosch University.

This has become an accidental pilot project of our social justice impact analysis project, which seeks to use available data to predict to social justice the effect of seemingly neutral policies and advise law and policymakers of possible adverse effects on any group in society and the possible sabotage of long-term national goals regarding the reduction of poverty and inequality.

Commenting on his Twitter account, a few hours after the budget speech, prominent economist Iraj Abedian said: “Min Gigaba didn’t take the radical economic transformation route, i.e: a salary cut for the cabinet ministers, a 50% reduction in perks, recovery of money stolen by KPMG, Mckinsey, SAP, the Guptas, ESKOM Execs & many others. Instead, he took a neoliberal option of VAT rise. How ironic.”

VAT aside, I am concerned the belt-tightening seems to be primarily imposed on the people either through VAT or the reduction of budgets for departments that have to deliver services, including justice services.

Would it not have been more comforting if the budget announced serious cuts on executive perks as argued by Abedian. Ninety I’m told is the number of tickets family members of ministers get a year. The most irrational I can think of is that no matter how short your stint is as a president or deputy president, you leave with all benefits, including a salary and an elaborate security detail for life. In richer countries it’s not the same. With judges, public protectors and others, you get a pro rata share.

I’m concerned that the budget seems to see the future of poverty alleviation in terms of more welfare for poor and disabled people. The child grant for example: What if the child assistance package included a ring-fenced amount to reduce unwanted pregnancies and help able-bodied mothers to become economically active by creating or finding work? What about investing in enabling technologies and other mechanisms to help people with disabilities to work and earn a living for themselves in the long term?

It also seems odd that there is no clear investment in institution-building to address the effect of state capture and to strengthen the fight against corruption and promote good governance as provided for in chapter 14 of the NDP.

Ultimately, the finance minister did his best. But it is my considered view that the design of a country’s vision and strategy should not be left to him. A grand strategy with more clarity; the NDP needs elaboration. What if it was the minister of planning who designed the expenditure framework and the finance minister simply put the figures in as chief financial officers do. The question remains, is the budget, particularly the VAT increase, social justice aligned?

- Madonsela is a professor and chairperson of Social Justice at Stellenbosch University and founder of the Thuma Foundation


Dear IRR, racism is real

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Dear IRR, racism is real

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