Committee for the Abolition of Illegitimate Debt

The past five years have hollowed out critical public services such as education and healthcare, leaving over a hundred thousand funded posts vacant, with many more removed from the departmental organograms.

Following Minister Enoch Godongwana’s admission that austerity has failed, Budget 3.0 signals a temporary end to the harsh austerity measures that have been in place since the 2020 budget, as key departments such as health and basic education see slightly above inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. increases. There are, nonetheless, still many below-inflation increases (real cuts) to be found, as was the case in Budget 2.0. These include real cuts to arts, culture, sport and recreation, higher education, as well as on HIV and TB services, in addition to the loss of the USAID PEPFAR funding. There are also well below-inflation increases to peace and security, which include policing and home affairs.

For years, the austerity belt has been tightened around the public sector, with departments needing to choose between paying existing staff, filling vacancies, or doing essential spending on maintenance and necessary goods or services. The fact that the belt has not tightened further does not mean that departments will be able to breathe any easier. This budget fails to address the impacts caused by years of austerity measures and therefore will not reverse the damage that has been done. This fails to recognise the disintegration of society that has occurred as a result of unprecedented levels of unemployment, crime, and institutional and infrastructural collapse.

The number of filled frontline posts has fallen far behind the population’s needs. For example, there is one doctor for every 3000 people in South Africa. This is far from the WHO recommendation of one doctor for every 1000 people. We should actually be employing three times the number of doctors!

We should see the easing of budget cuts as a response to the significant pressure that has been put on the Treasury and the ruling party by both popular forces, trade unions, and opposing factions in government. For years, the ruling party has been accustomed to implementing policy without concern for politics, but it is clear that their difficulty to pass this budget has been a wake-up call to some extent. The reversal of the VAT increase and the fact that we have avoided massive cuts in response to it should be seen as a sign that we must intensify our efforts to organise and mobilise in resistance to the state’s overarching implementation of neoliberal policy in the face of growing social and economic crises.

Relief to poor households reversed

Relief to cushion the poorest households, struggling with food insecurity, has been rolled back since Budget 2.0, as the Treasury had tied these to the VAT increase. The relief measures which have now been withdrawn include:

• Proposed above inflation increases to social grants in 2026/27 and 2027/28.
• Proposals for additional zero-rated items. There will be no new zero-rated items.
• Proposal to leave the fuel levy unchanged. The levy will now be increased.

With Child Support Grant and Social Relief of Distress grants far below the food poverty line, and 1 in 5 households struggling with food security, such withdrawals to much-needed relief are unacceptable. So far this year alone, 155 children have died of malnutrition. While at the same time, both the Child Support Grant and the Social Relief of Distress (SRD) grant fall below the food poverty line. Recipients of the Social Relief of Distress Grant are not able to meet even half of their daily nutritional needs.

This budget has also announced that the fuel levy will be increased by inflation, which will cause increases to the cost of living across the board. Given the severe strain South Africans face to meet their basic needs, any increase to the cost of living will be devastating!

The National Crisis of Unemployment

We are concerned that very little is mentioned about how to address the problem of mass unemployment. The Quarterly Labour Force Survey was released last week, showing that the unemployment rate increased to 43 percent. Unemployment is not only higher than any other country in the world, but it is even higher than that of war-torn Germany during the Great Depression. This should be treated as a national emergency – something that has no echo in this Budget. In this regard, we call on the mandate of the South African Reserve Bank to be focused on policies and strategies towards job creation.

Instead of being a key policy target, job creation is a hopeful trickle-down effect of “macroeconomic stability and low inflation”. Over the last period, these very policies have been responsible for job losses. The government claims that during the five years of Phase I of Operation Vulindlela, R500 billion of investment was unlocked – yet new jobs were not added to the baseline over this same period.

Further measures to create growth and jobs are given as:

• “Greater private sector participation in public infrastructure.”
• “Remove the regulatory burden on business.”
• “Professionalising Utilities.”
• “Accelerating the release of publicly owned land and buildings.”

These measures might be straight from the World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

’s playbook, but they are very far from the types of labour-intensive mass employment programmes needed to deal with this crisis.

Trickle Down Growth Puts Profits Over People

The government’s vision for growth and job creation, therefore, continues to focus on improving conditions for the private sector and hoping that they will invest and that this investment will lead to jobs. This is classic trickle-down economics, whereby creating jobs, improving poverty and inequality are viewed as hopeful by-products of improving conditions for elite business owners. South Africa’s deep problems require much more than improving the conditions of doing business and improving the conditions by which to accumulate capital!

Operation Vulindlela, which has recently moved into its second phase, is at the vanguard of this growth strategy, aiming to deal with infrastructure constraints and efficiency concerns by introducing a raft of PPPs as well as the mechanisms to manage and secure these partnerships. PPPs are envisioned as the solution to both the electricity and the rail crisis, and this year’s Budget(s) refer to the establishment of a centralised PPP structure under Treasury’s control that will allow for the management and fast-tracking of strategic PPPs. International experience has shown that PPPs are no replacement for sustained public investment on a public-goods basis. As raised in the recommendations of the standing and select committees on finance attached to this budget, PPPs and blended finance arrangements often result in the public sector taking on financial risk, while the private sector takes on the profits. Even ‘successful’ PPPs in key public services often rely on the commodification of basic services, which should not be provided for on a for-profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. basis, but the private sector will not invest without the promise of profit. PPPs will further indebt the country, raise user fees and fail to create the millions of labour-intensive jobs so urgently needed.

The budget predicts a revised growth trajectory of 1.4%, well below what is needed to keep pace with the growing population and labour force. Even this is optimistic, as this is predicated on initiatives like Operation Vulindlela enabling greater volumes of exports at a time when international trade is in a state of chaos, with protectionism on the rise. Once again, the budget lacks any meaningful proposals to stimulate economic development, grow employment and fundamentally change the situation in the country.

South Africa needs to urgently reverse years of premature deindustrialisation. A reindustrialisation strategy, based on a publicly driven mass housing programme, expansion of public transport, energy and rural industrialisation to ensure higher levels of food production, particularly by small-scale farmers, has the potential of stimulating many downstream industries and creating many millions of jobs. However, this would require a fundamental break with austerity, trade and financial liberalisation as well as privatisation.

Alternatives to Neoliberal Fiscal Policy

In a context of the deep social crisis affecting the vast majority of the population, the government’s obsession with growing a primary budget surplus over the next few years is an insult to the extreme suffering of our people. Debt is not a problem if it is used for productive investment that creates jobs and potentially higher levels of growth and tax revenue that can outpace interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. payments. This is where the national debate must go.

In addition, there are lots of opportunities for reducing debt interest costs. For example, the Public Investment Corporation and the Government Employees Pension Fund Pension Fund
Pension Funds Pension funds: investment funds that manage capitalized retirement schemes, they are funded by the employees of one or several companies paying-into the scheme which, often, is also partially funded by the employers. The objective is to pay the pensions of the employees that take part in the scheme. They manage very big amounts of money that are usually invested on the stock markets or financial markets. control trillions of Rand in assets, including a significant portion of government and SOE debt. At the same time, the GEPF is highly overfunded, sitting at 110% while it is only required to be 90% funded. These funds can invest greater levels of their assets in government borrowings at below-market interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. , or voluntarily lower the repayments on existing bonds, without endangering their funding level nor pensions.

Treasury has indicated that new tax proposals to raise R20bn will be tabled at the 2026 budget. This is likely a response to a failure to reach a political compromise on revenue measures, instead opting to kick the can down the road. Treasury must consider progressive revenue options that begin to tackle the extreme wealth inequality in SA, where the top 1 percent own more than half the total wealth in the country. These include a wealth tax and a pause on the inflation-related adjustments to the tax brackets of the rich. We must emphasise that the government is highly unlikely to explore such measures without the kind of sustained public and political pressure that led to the reversal of the VAT hike.

Lastly, we note that the Treasury continues to push for a fiscal anchor in Budget 3.0, which is very likely to legislate a mandatory primary budget surplus going forward. The adoption of a fiscal anchor puts our democratic control over the budget at risk and could lock us into austerity, while closing down the space for any future large-scale public investment and reindustrialisation programme.

Minister Godongwana, this remains an austerity-oriented, anti-poor and anti-worker budget, which will further increase the suffering of our people.

For more information, contact:

Chloé van Biljon: 082 8924 702
Dick Forslund 082 895 7947‬
Jaco Oelofsen: 084 376 9019
Brian Ashley: 082 085 7088