The unprecedented postponement of the 2024/25 budget speech on Wednesday shocked South Africans, but it has left hope that the revised plan, due to be tabled on 12 March, will be more aligned with economic growth, and not so heavily focused on increasing taxes.
The budget speech was postponed at the eleventh hour because the ANC’s partners in the Government of National Unity (GNU), are opposed to the proposed 2% increase in VAT, a move that would see a hike in the cost of food, transport, and daily essentials.
Director and chief economist at Econometrix, Dr Azar Jammine says it would be a regressive tax. “Increasing VAT may not result in more revenue collection. Instead, it will increase the cost of living and people will spend less, and you could end up collecting less revenue.”
He says the postponement of the budget speech is a positive development that “shows that the ANC is no longer the majority and can’t just push policies through without listening to its GNU partners”.
As the GNU goes back to the drawing board Jammine highlights two items on the budget that are “eye-watering”.
Subscribe to our newsletter
The first is the public sector wage bill which is over R700 billion a year, accounting for about a third of the total budget. There have been repeated calls over the years for the Treasury to cut the cost of civil servants. At the same time, the government has been under increased pressure to hire unemployed health workers. Public sector wage increases are listed among the justifications for the VAT hike proposed in the leaked speech that Finance Minister Enoch Godongwana was meant to deliver in Parliament.
But Jammine argues that there are ways to hire more health workers while increasing taxes. “There are many administrators at local governments who are not doing anything,” he says.
The second item that Jammine says is not contributing to economic growth are social grants. During the State of the Nation Address (SONA), President Cyril Ramaphosa said more than 28 million people receive social grants. The president said the Social Relief of Distress (SRD) grant will form the basis for a universal income grant for unemployed people.
“It’s a sorry state of affairs when the government is dishing out grants instead of creating jobs,” says Jammine. “It’s a life-saver to some, but it’s not a permanent solution.”
USA Funding
The finance minister’s speech also highlights new and persistent spending pressures in health, education, transport and security. Among these spending pressures would presumably be the funding gap exposed by the United States’ 90-day freeze on foreign aid. This has resulted in the halting of some HIV, TB and related services which were funded by the US President’s Emergency Plan for Health Relief (PEPFAR).
While a waiver was issued that allows the provision of essential HIV and TB services, it’s not clear what will happen after the 90-day review period. In the face of this uncertainty, there have been widespread calls on the government to plug this funding gap. South Africa, which has the highest HIV treatment programme with 5.5 million on ARVs, is one of the biggest beneficiaries of PEPFAR which contributes around 17% of South Africa’s HIV programme.
The National Health Department has introduced temporary contingency measures to continue services that were interrupted by the US funding freeze.
Adjunct Professor at Wits University and former head of the budget office at the National Treasury, Micheal Sachs, says he would advise the minister of finance to decisively fund all of the country’s HIV programmes. Sachs was speaking at a pre-budget seminar at Wits University earlier this week.
“There is no reason why South Africa should not fund its own HIV/AIDS programmes that were funded by the PEPFAR from its resources. We should be saying ‘thank you’ to USAID for helping us develop this system but now we are going to take the funding fully,” he says.
Implementation of the NHI
A major omission from the minister’s speech is the National Health Insurance (NHI). Jammine believes that any budget allocations towards the NHI would receive pushback from GNU partners and that such an allocation would most likely be subsumed in the health budget.
The NHI will be implemented in two phases. Phase 1 started in 2023 and is meant to be completed in 2026.
“If the country could achieve phase 1 of the implementation, it would have done an amazing job. Phase 1 in the legislation is supposed to be up to 2026. But I don’t believe that it can be implemented before then, certainly not now because we haven’t kept pace,” he says.
Sachs says the health budget needs to accommodate the reforms in the Department of Health to improve access to health services, reduce financial barriers and also strengthen the health system. He argues that the sooner the implementation of the NHI the better.
“We just need to proceed with the health reforms such as the NHI implementation, obviously doing so in a position of fiscal constraint which is twice as difficult than doing so in one of growing budgets,” he says. – Health-e News
