- The Finance and Fiscal Commission has raised concerns that plans for fiscal consolidation will come at the expense of delivering on basic rights outlined in the Constitution.
- The finance minister and other ministers whose departments will get budget cuts must explain to Parliament how service delivery will not be compromised, the Commission recommended.
- The cost of servicing debt is crowding out spend on social services, health and education, the Commission said.
Finance Minister Tito Mboweni, along with ministers whose departments will receive budget cuts, should explain to Parliament how service delivery will not be compromised, according to the Finance and Fiscal Commission (FFC).
The commission - which is constitutionally mandated to make recommendations to Parliament, organs of state and government on fiscal and financial matters - on Tuesday briefed members of the standing committees of finance and appropriations on its insights on Budget 2021.
Mboweni last week tabled the budget review, which mapped out plans to achieve fiscal consolidation to stabilise the debt trajectory. Notably, government is optimising on reining in expenditure, particularly when it comes to the public servants wage bill.
Treasury has also come under fire for cuts to social grants - a move it has defended as an effort to reduce the budget deficit so that "leeway" can be created for future spending on social development.
"As the FFC we are a creature of the Constitution and our central concern with this budget is that we are not convinced that it is consistent with the provisions of the Constitution," said acting chairperson Michael Sachs.
Sachs, who is the former head of the National Treasury's budget office, then clarified that the FFC was not saying that the budget is not aligned with the Constitution, but that the finance minister did not go far enough to convince the Commission that it is.
Budget a retrogression in socioeconomic rights
"The Constitution says the Bill of Rights is the cornerstone of democracy, binding on legislature and of the executive. For the first time, there's a budget tabled in Parliament which unambiguously envisages a retrogression in socioeconomic rights set out in Bill of Rights," said Sachs.
He gave examples of how the budgets to central hospitals and emergency medical treatment had declined by millions since 2019. "In the medium-term, all these budgets are falling far below inflation. We expect to see a real erosion of the value of services provided through central hospitals in the next three years," said Sachs.
He added that a similar problem is likely in basic education – with the budget only growing below 2%. A lot of this growth is attributable to compensation. The FFC expects there to be a retrogression in the provision of basic education, particularly in no-fees schools servicing the poorest in the country, over the next three years.
He noted the cuts in social grants at a time when there is a rise in child hunger. Social grants will be cut by R5.8 billion according to the budget review, Fin24 previously reported.
Allocations to social development will decline 14.4% in real terms in 2021/22, the FFC highlighted in its presentation.
"While the commission welcomes the relief provided by the extension of the special Covid-19 social relief of distress grant, it is of concern that total spending on social security grants is projected to decline by 6.2% per annum over the next three years,"' the presentation read. The cuts will likely adversely affect the poor, it added.
"There are economic realities our country faces. We have had declining per capita income as a society for the last five years. We will continue to have declining per capita income over the medium-term," said Sachs. He said it was important to determine if Constitutional rights can be realised if there is continued declines to per capita income.
He pointed out that debt servicing costs are rising and crowding out the fiscal space to provide social services. According to the Budget Review debt servicing costs amount to 13.4% or nearly R270 billion of government expenditure in the 2021/22 financial year alone.
The FFC wants Parliament to hold the executive to account so that ministers can explain how the budget will be consistent with the prescripts of the Constitution, explained Sachs. For example, Mboweni should explain how the decision to withdraw tax measures was weighed against constitutional imperatives.
"The onus is on the executive to explain to Parliament and South Africans the situation we face and what measures they are taking to defend rights in terms of the Constitution," said Sachs. He reiterated that this is the first time a budget has been presented which sees a "significant reduction" in core services as set out in the Bill of Rights.
On the flip side, departments which will receive additional allocations must indicate how, through service delivery, they will improve economic recovery and address the Covid-19 pandemic's impacts, the FFC recommended.
According to the FFC, the fiscal consolidation plan to stabilise debt within three years is unlikely. It is concerned that retrogression will continue beyond the three years if it takes longer for debt to stabilise. The FFC noted that the budget deficit continues to grow – despite reprioritisation efforts, and a boost in corporate income taxes particularly from the mining sector. The risk that SA will fall into a debt trap remains.
Sachs highlighted that it is difficult to make reliable projections on debt. There are a number of factors that must be considered like what economic growth will be and what interest rates will be.
"When the economic growth rate is higher than the interest rate we pay on debt, this has a stabilising effect on debt," he explained. The FFC is of the view that efforts to raise the economic growth rate would be a more effective path in debt stabilisation than cutting the budget.
Parliament will hold public hearings on the national budget on Wednesday.