Can severe budget trade-offs further improve agency and social cohesion for South Africans?
In the midst of anemic growth and spiraling debt, the taxman finds himself on a proverbial tightrope. On the one hand, the urgency to spur inclusive economic growth is accelerated by deteriorating living standards and lack of opportunities for ordinary South Africans; on the other hand, debt management continues to eat away at revenues. Despite creeping signs of pre-pandemic austerity, the task ahead of the Treasury is now a difficult balancing act: considering how best to navigate and implement tough trade-offs that can further improve agency and performance. social cohesion for South Africans.
Due to decades of interlocking structural constraints, South Africans, unsurprisingly, still find themselves trapped in cycles of unemployment, poverty and inequality – a long-lasting marginalization that has had severe consequences for the country’s essential social capital. .
In 2021, the Institute for Justice and Reconciliation (IJR) warned that if political institutions remained unresponsive to economic grievances in years to come, they risked tipping the scales from democratic contestation to instability. In fact, in July 2021, the nation witnessed the shockingly high price of economic exclusion. In a context of uneven development, a crumbling tax system and a declining economic agency, the inseparable objects of social cohesion and economic marginalization have been laid bare.
The underlying weak position of the fiscus and its failure to strengthen the economic agency of South Africans preceded the 11 days of civil unrest and chaos in July 2021. The past decade has witnessed an erosion of the agency among South Africans whose access to basic economic opportunities have been stifled.
This was underscored in the November 2021 medium-term fiscal policy statement by Finance Minister Enoch Godongwana, who stressed that reform is now a matter of urgency. It is important to note that areas for reform are also vectors of inclusion. Some of the levers believed to expand access to the economy include, but are not limited to, energy supply, affordable internet access, logistics efficiency, and infrastructure development.
Inclusive reform is crucial
Currently, there is a pressing need for reform that promotes inclusion as a catalyst for the return of economic agency to all South Africans. This fundamental need is further highlighted by the findings of the South African Reconciliation Barometer, a public opinion survey conducted by the IJR, which found that almost half (45%) of South Africans are dissatisfied with their personal economic power. This helpless admission can be partly explained by the seemingly impossible obstacles preventing access to economic opportunities.
The same survey found that when it comes to accessing the essential building blocks for achieving the Goals, about a third of South Africans feel they lack the necessary access to financial resources (35% ), the right kind of education (30%) and the ability to easily reach places to achieve their goals (29%).
These severe access constraints not only deny inclusion, but also erode people’s economic agency – a process that, in turn, exposes a population to greater vulnerability to shocks such as economic downturns or impending consequences. of climate change. This loss of agency has another consequence: the stifling of agency creates frustrations that weaken a society’s resilience to resist capture by populism and other harmful political forces.
However, alleviating these burdens through reform and funding is not easy. With
skyrocketing debt levels, revenues to fund spending priorities must come from sources other than borrowing. In the absence of any prospect of robust growth in the short or medium term, the increased burden could, once again, weigh on taxpayers, who are simultaneously bearing the rise in inflation and interest rates. These forces have depressed household income and are likely to put downward pressure on government revenues.
Amid these pressures, it’s no surprise that the prospect of a higher tax burden doesn’t sit well with South Africans. Afrobarometer, Africa’s largest public opinion survey, found that most South Africans believe that ordinary citizens already pay too much tax (42%) or about the right amount ( 35%); only a handful say people are taxed less than they should (15%). Another concern for the Treasury to consider is that almost seven in 10 people (69%) say they have difficulty knowing how the government uses tax revenue. In a context of falling household incomes, tax increases risk further draining the capacity to act; it will be interesting to see if the government goes down the road of increasing income and consumption taxes.
Constrained by shrinking fiscal space – the parameters of which are defined by a sluggish economy, an impoverished society and the relentless onslaught of debt servicing costs – trade-offs must instead identify precise leverage points that create pathways of inclusion which can also trigger multiplier effects. One such leverage point is transport – the enduring legacy of apartheid land-use planning, coupled with the poor performance of public transport infrastructure, has prevented South Africans from effectively accessing the poles. economic. It also requires policy makers to consider the high costs to society of extreme levels of centrality in the economy.
The public treasury should consider a reform that makes the economy more flexible, centered on the community rather than on large state enterprises. To this end, endowing civil society with adequate resources is not only a catalyst for localized development nodes, but also for rebuilding trust and social capital – essential characteristics of a cohesive and resilient society. After all, it is South Africa’s vibrant civil society that has enabled extraordinary resilience and solidarity over the years.
Community-based or area-based development interventions offer a low-cost policy option that can be implemented quickly. At the same time, localized development creates space for experimentation and innovation – two essential foundations of development that are otherwise too costly or risky for large-scale or centralized programs to carry out.
The trade-offs ahead will be difficult, but it is essential that fiscal policy be underpinned by a long-term vision to build a socially cohesive and peaceful society. Budget cuts and debt service should not be at the expense of social cohesion, but rather allow greater flexibility so that the agency can once again establish itself in our society.
Read the IJR analysis on what to expect in 2022 here.