JABULANI SIKHAKHANE: Taking a lawnmower to the budget could worsen inequality and poverty

Two recent reports — one by the Southern Centre for Inequality Studies at the University of the Witwatersrand and the other by the IMF — lay bare how dire the state of SA’s socioeconomic environment will be over the next five to 10 years. 

The Southern Centre points to two worrying trajectories of government finances. First is the continued shrinking size of the state as a percentage of GDP over the next decade. Second, the smaller state will happen at the same time as the state reduces expenditure on the items on which the most vulnerable in society depend for their livelihoods and social comforts. 

The IMF says SA’s economy will grow less than 2% a year until 2030, while unemployment will hover above 30% over the same period. The fund sees SA’s economic growth rate reaching 1.8% by 2030 due to improved electricity supply and better logistics. But it warns of risks to this outlook, because of “a possible intensification of geo-economic fragmentation and protectionist policies in the context of an uncertain global environment”. 

The IMF’s outlook points to more people who will depend on the state for a social cushion. But as the Southern Centre warns in a report published last week, the government policy baseline for the next 10 years reduces the size of the state. “Such a reduction will have notable implications for service delivery and for testing the durability of SA social contract,” said the report, whose authors are Michael Sachs (former head of the National Treasury’s budget office), Rashaad Amra, Thokozile Madonko and Owen Willcox. 

It said the state’s share of economic activity as measured by GDP had already shrunk to its 2012 level, “and the Treasury’s budget plan is to cut it down by two percentage points further”. 

The centre also criticised government’s approach to budget cuts, which are aimed at arresting the growth of government debt. The cutting of all budget items — the “lawnmower” approach — had long been recognised as “the least efficient and most damaging approach to expenditure consolidation”.

It said the National Treasury’s objective of changing the composition of government expenditure from consumption to capital has the consequence of squeezing funding for education, healthcare and criminal justice — all of which are dominated by consumption spending. Because of their nature, these government sectors use a lot of labour to deliver services. 

The contradiction here is that the Treasury has for years been harping on about how government was spending a large share of its budget on the social wage — expenditure on health, education, social protection, community development and employment programmes. Treasury said in the 2024 budget that social wages made up 60.2% of total spending (after deducting interest payments). 

The centre said the squeeze on government consumption expenditure implied “poorer learning outcomes in schools, longer queues for service in hospitals and the court system, and fewer professional staff relative to the effective demand” for these services. 

Poor learning outcomes have a huge bearing on employment opportunities. Poor learners tend to drop off before they complete school, swelling the ranks of the unemployed. Stats SA’s measure of employment and unemployment for the third quarter of 2024 showed that unemployment was almost four times higher for those who didn’t complete high school, and 3.5 times higher for those with matric compared with graduates. 

There are enormous inefficiencies, corruption and waste in government services, and more decisive action against these ills might help offset the impact of budget cuts on services. However, there is no credible programme to realise such goals. 

If unmitigated, this trajectory of decreasing allocations using the “lawnmower” approach could worsen unemployment, inequality and poverty, undermining SA’s constitutional commitment to socioeconomic rights.

Given the extent and duration of expenditure restraint that has been proposed in the budget (and if this path does not change fundamentally in budget 2025), it is imperative that government provide detailed assessments and projections on the implications of medium- and long-term expenditure plans.

It can thereby clearly articulate the expected consequences of the fiscal path for the quantity and quality of government outputs, which is critical for transparency and accountability. Departments should explain the anticipated impacts on public services, performance indicators and broader social outcomes across key sectors such as education, healthcare and social development.

Each department must also disclose the projected effects of budget cuts on government’s human and physical capital, including staffing levels, workforce composition, maintenance and infrastructure spending, and the essential goods and infrastructure required to maintain adequate public service provision. 

• Sikhakhane, a former spokesperson for the finance minister, National Treasury and SA Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.