Actually, the Budget was pro-poor
Malusi Gigaba recently delivered his maiden Budget as finance minister. It turned out to be his last: He was redeployed by President Cyril Ramaphosa to his old job as home affairs minister following a dramatic Cabinet reshuffle in which 10 ministers lost their jobs.
Gigaba tried his best to slice up the R1.67tr Budget in a way that made everyone happy with the spending allocations.
But budgets rarely appease everyone, and Gigaba’s was no exception.
In the aftermath of the tabling of the Budget in Parliament last month, opinion was split between those who regarded Gigaba as a generous Santa Claus and others who saw him as a penny-pinching Ebenezer Scrooge with no concern for the plight of the poor.
But the question that has to be answered is this: Is Gigaba’s 2018 Budget pro-poor or pro-growth?
This is relevant given that South Africa struggles to generate the economic growth which creates employment.
This question also touches on the legacy of high wealth inequality – with the have-nots running out of patience thanks to poor service delivery and endemic government corruption.
In fact, Gigaba’s Budget appears to be more pro-poor than pro-growth.
This is because there was no announcement of major measures to stimulate the economy, which is expected to grow by 1.5% in 2018 and 2.1% in 2020 after a meagre 1.3% expansion last year.
The reality is that Gigaba’s hands were tied because – thanks to the corruption of the past decade robbing the state of much-needed financial resources – the government does not have the money to support growth.
The projected growth rates for the next three years are too low to make a significant dent in SA’s stubbornly high unemployment rate. More than 65% of the R1.67tr Budget will be spent on delivering social services to the poor, particularly health, education, housing, and social grants.
The hike of the value-added tax (VAT) rate, the first increase in 25 years, and the introduction of free higher education for poor students were the highlights of the Budget and attracted much comment.
Despite widespread criticism by consumer rights groups, trade unions, and political opposition parties that the VAT increase would harm low-income consumers, my view is that the Budget will in fact benefit the poor and promote upward social mobility.
The increase was projected to rake in an additional R23bn in revenue for the state. However, this figure may drop, because pressure from opposition groups has forced the government to find ways of lessening the impact of VAT on the poor.
The new finance minister, Nhlanhla Nene, will lead a review of the zero-rated food basket and add basic foodstuffs.
It remains to be seen how the expansion of the zero-rated food basket will impact revenue collection.
The government had earmarked VAT as a major source of funding for free higher education, which will cover more than an estimated 340 000 students at universities and almost 420 000 full-time students at technical and vocational education training colleges.
R57bn of the Budget was allocated to higher-education fees.
Free higher education will enable students from poor families – many of whom have until now been excluded from tertiary education by the costs – get jobs that will propel them into well-paying middle-class jobs.
The funding will also address the skills shortage in our country and give employers access to a much larger pool of skills.
If the implementation of free tertiary education is properly managed, it will have massive positive spin-offs for our economy.
But, disappointingly, despite benefitting the poor, the Budget failed to give any stimulus to SA’s economy.
As has happened frequently in the past, there was very little cash left on the table to fund small businesses – despite repeated promises by the ANC-led government that it would boost financial assistance to small, medium and micro enterprises (SMMEs) to drive economic growth and job creation.
The R2.1bn allocated to small businesses is a drop in the ocean.
It is insufficient to extend funding to SMMEs, particularly start-ups, which are shunned by commercial lenders because of the high failure rate in this sector.
Instead, our government still prefers to make big allocations towards supporting large-scale industrial projects.
The proof? It has set aside R18.8bn over the next three years to provide industrialisation incentives.
Apart from making promises about opening up public procurement to small black suppliers, there is little that this Budget will do for SMMEs.
Hopefully, future Budgets will be more sympathetic to small businesses and will target this sector as a way to increase the number of jobs in the country.
But for now, the focus is on eliminating corruption and bedding down the roll-out of free education.
Nene’s experience is good news for our country. Someone of his calibre is needed to turn around the economic mismanagement of the recent past.
Andile Ntingi is the chief executive and co-founder of GetBiz, an e-procurement and tender notification service.
This article originally appeared in the 15 March edition of finweek. Buy and download the magazine here.