The winners and losers in Gigaba’s budget
Higher education wins big to provide for free university education, while cuts to school building programmes and low-cost housing mean that poor communities will lose out
Higher education was the big winner of the budget, receiving an additional R57bn over the next three years to provide for free university education for poor and working class students. This was the single biggest change to the budget since last February, making further education and training the fastest-growing item in the budget at 13.7%
But on the spending side it was poor communities that were the biggest losers, with cuts made to public entities such as the Passenger Rail Service of SA (Prasa) and infrastructure grants to provinces and municipalities savaged.
At a provincial level this will mean cuts to school building programmes; the upgrading of school infrastructure; low-cost housing budgets; and the maintenance of provincial roads.
At local government level the municipal infrastructure grant is to be cut, which includes spending on the provision of bulk water, local roads and public lighting. Grants for electrification, urban development and public transport were also slashed. The Budget Review notes that “the cuts will delay the completion of a number of infrastructure projects”.
Speaking to journalists at a prebudget briefing, Finance Minister Malusi Gigaba said the government had tried to target cuts to infrastructure programmes that had typically underspent in the past. The cuts were partly a direct consequence of the increase to higher education, which came on top of the spending and revenue adjustments made to compensate for the R48.2bn shortfall.
“We had to find a way to pay for a policy and programme of that scale. So we had to take decisions. In areas where we had to cut spending we looked for where it would have the least effect. We believe they will have a bearable impact on growth and service delivery,” he said.
Ian Stuart, head of the budget office at the Treasury, said: “We needed to make a big cut in a short period of time.
“We did try and target grants where there is a history of underspending. But there is no question that infrastructure is going to have to be delayed, and that is the big trade-off.”
To mitigate cuts to infrastructure programmes Stuart said the Treasury had established the Budget Facility for Infrastructure, which would facilitate projects that were able to meet certain benchmarks and standards. This would involve “really tightening up on large infrastructure projects”, which in the past had typically overrun initial cost estimates.
Expenditure cuts over the next three years will amount to R85bn, with the lion’s share (R57bn) coming from the delay or scrapping of national programmes and transfers to public entities. Apart from Prasa, other agencies that are to suffer from reduced budget allocations are the South African National Roads Agency and several water boards.
Finance Minister Malusi Gigaba delivered his annual budget speech in Parliament on February 21 2018. Here are the highlights. Subscribe to TimesLIVE here: https://www.youtube.com/user/TimesLive
The only other sizable additions to the baseline amounts tabled last February were an additional R4.2bn for National Health Insurance, which will be raised by reducing the amount given back to taxpayers through the medical tax credit, and a R10bn allocation to the contingency reserve.
The largest category of expenditure at 16.5% remained basic education (R246.8bn), followed by health, which received 13.9% and a quantum of R205bn. However, the annual increase to their budgets over the period will only just keep pace with inflation at rates of 6.8% and 7.8%, respectively. With fast-growing compensation budgets — salaries are expected to grow at 7.3% per year — both departments will find it difficult to keep spending on programmes at current levels.
In the case of health there are already large backlogs in the payment of invoices from 2017-18, which will eat into the budget for the coming year.
The second-fastest growing category of expenditure was debt service costs, which will grow at 9.4% over the next three years. Social protection, which includes social grants, will rise at 7.9%. However, social grants grow at 5.9%, slightly above projected inflation for the period, which is expected to range between 5.3% and 5.5%.
The government hopes that the above-inflation increase to social grants will shield pensioners and children from the increase in VAT.