– Civil society organisations: “The new Finance Minister is stuck with “Plan A” and delivered an austerity Mini-Budget”

For those of you concerned about the quality of public services such as education, health and social services your concerns will not have been addressed in the 2014 Medium Term Budget Policy Statement. Finance Minister Nhlahla Nene’s first Mini-Budget does not cater to the concerns of the vast majority of South Africans. There is no radical transformation of the economy for the second transition towards a more democratic and just South Africa. What Minister Nene has presented is a “Plan A” Mini Budget that the global rating agencies, conservative big business, investors and economist would like to see South Africa implementing over the next three years. What the Minister has presented can only be termed an austerity budget.

The Minister’s plan is delivered in such sanitised terms, speaking of the need for “fiscal consolidation” and “restraining expenditure growth” in order to “re-establish a sustainable foundation for the public finances and to build a platform for investment led growth in the future”. What does this mean for those who have been turned away from their clinic due to shortages in drug availability or for poor children’s ability to access the basic for learning to take place like textbooks, desks and toilets? It means that they will be expected to endure for another two to three years drug shortages or unavailability of toilets or desks. While it may seem that the Minister is presenting a budget that is “safeguarding” the public purse and at the same time protecting front-line services this is in fact not the case.

For the first time since the financial meltdown in 2008, the curve in the diagrams showing government spending is pointing downwards. A Treasury spoke person’s assurance that the austerity measures in Europe are worse will be of little consolation to the majority.

The R12bn in increased taxes to be announced in February are completely insufficient. This does not represent a long overdue “fiscal shift” towards a larger public service sector. The amount is far below what would be possible, considering tax cuts made since the beginning of 2000’s and endemic tax dodging and aggressive tax planning in the corporate. And the small increase in taxes coming up is counter balanced by a R10bn cut in spending.

There will be no change in real funding for Health and Education. The NHI is postponed again. There is no indication of real investment in health in the medium term. Neither the long awaited White Paper on NHI, which now has become yellow from aging, nor the Treasury NHI financing paper are made public. There are only vague statements about exploring the financing of the NHI. A fund for “unallocated reserves” has its main spending delayed until three years from now. In the worst of cases it might even be used for servicing the debt.

Is this situation, it is hard to find measures to welcome. However, we welcome that there is no funding allocated for the built out of running cost and dangerous nuclear power.

If government want to make sure that the social grants are protected by inflation, the increases should not be pegged against Headline inflation (CPI), but against the usually higher inflation rates that hit those who are receiving the grants and spend most of their miniscule budgets on food, transport and electricity. More importantly, tens of thousands of recipients are being hit by “deductions” from grants accounts, some of them becoming victims of profiteering, some of fraud and economic crime. Systems aimed for guaranteeing rights enshrined in the Constitution shouldn’t be subjected to the public-private partnership doctrine, which this MTBPS statement signals will be applied to new areas.

The visible tax base is just the tip of an ice berg of tax dodging and aggressive tax planning.

Less than 3000 individuals declared a taxable income above R5mn 2012. They contributed an average of R3.5mn per year in taxes. International studies classify more than 45000 persons living in SA as “High Net Worth Individuals”. They earn more than R7mn per year or have a financial fortune of more than R70mn. If only ten thousand of them would be brought into the system during the coming period, tax revenue would increase by more than R35bn per year.

Illicit capital export from SA amounts to about R100 billion every year. To this must be added transfer pricing and other arrangements, notably in the mining industry. A major overhaul is needed of capital controls and the laws that regulate transfer pricing.

This should be a part of a real shift, in fiscal policy and in economic policy on the whole, the necessary Plan B which provides the Minister Nene with resources that can achieve South Africa’s Constitutional obligations.


BEMF, Budget justice and AIDC


For more information:

Thoko Madonko, 083 710 3440

Budget Expenditure Monitoring Forum

Dick Forslund, 0828 957947

Alternative Development and Development Centre in Cape Town