Open Letter| Over 100 experts and organisations call on the President and Minister of Finance to halt all planned budget cuts

As leading South African economists, researchers and civil society representatives we write this letter to state our opposition to National Treasury’s attempts to force government entities and departments to significantly cut spending. National Treasury’s instruction to government entities to immediately institute severe budget cuts is misguided, dangerous to our economy and well-being, and not supported by robust evidence. 

The Minister of Finance and National Treasury officials have cited expected revenue shortfalls and budget overruns as grounds for this drastic action. This is being wrongly characterised as an imminent ‘fiscal crisis’. National Treasury has also failed to acknowledge its own role in precipitating the budget mismatch. A sense of panic is being created in order to force through these rushed, chaotic and indiscriminate cuts in the Medium-Term Budget Policy Statement in November 2023.

If implemented, these cuts will slow economic growth, undermine service delivery, and curtail social protection thus exacerbating unemployment, hunger, and social instability, leading to a retrogression in the realisation of the socio-economic rights contained in our Constitution. This strategy is self-defeating as economic contraction resulting from such cuts would make debt repayment more difficult. Rather, the fiscus must be leveraged to set South Africa on a new economic path.

We call on the President and Minister of Finance to halt all budget cuts. The existing budget mismatches can be readily resolved through other measures. Instead, we urge the government to undertake a thorough, transparent and evidence-based budget review process over the next 12 months. 

We note the following important context: 

1. The revenue shortfall is not abnormally large. The shortfall is widely projected to be R53 billion. This is of a similar magnitude to shortfalls in previous years, for example, of R61, R58, and R70 billion respectively in 2017/18, 2018/19 and 2019/20, and significantly below the revenue windfalls of R241 and R123 billion in the last two years. 
2. In addition to a revenue shortfall there is also an expenditure overrun. The expenditure overrun is predominantly due to the National Treasury failing to budget adequately for foreseeable expenditure and Departments should not be punished for this. The largest share of this is R37.5 billion from the predictable public sector wage bill increase. The overspend is also comparable to other years, although the revenue shortfall and expenditure overspend compound one another.
3. South Africa’s debt is not unusually high although it is comparatively expensive. South Africa’s debt-to-GDP ratio is 71.4% in 2022/23, compared with the emerging market and middle-income country average of 69%. However, on average upper-middle income countries in 2022 paid 2% of GDP in interest payments, compared with South Africa’s 5%.
4. Rushed, across-the-board, expenditure cuts will not lead to greater efficiency, or the improvement of poor-performing programmes. Rather, cuts will result in staff shortages across the public service, programmes seen as ‘easy to close’ irrespective of need or performance will face the chop, and programmes supporting patronage networks and corruption are likely to be jealously guarded.
5. Expenditure cuts are widely known to have negative social and economic outcomes. Recent research shows that fiscal contraction larger than 1.5% of GDP generates a negative effect of more than 3% on GDP even after 15 years. The drop in GDP reaches 5.5% for fiscal contractions larger than 3%. Recent research by the IMF also highlights that, “[o]n average, fiscal consolidations do not reduce debt-to-GDP ratios”. Cutting spending will hamstring desperately needed economic growth, making it harder to service debt in the future.
6. South Africa faces multiple well-known social and economic crises, including low growth, poverty, inequality, hunger, unemployment, and crime. The immediate budget mismatches constituting National Treasury’s ‘fiscal crisis’ should not obscure these dire pre-existing crises. Ill-conceived cuts would exacerbate these crises.
7. The only solution to secure the sustainability of public finances and address our social and economic crises is state-supported, inclusive, and sustainable economic expansion.  

With this in mind we call on the President and Minister of Finance to undertake the following: 

1. Immediately close the budget mismatch by drawing on reserves and increasing shorter-term, less expensive borrowing. This includes drawing on the R459 billion owed to the South African government in the SARB’s Gold and Foreign Exchange Contingency Reserve Account. Even if the entire mismatch were closed through borrowing it would only increase debt levels by 1-2 percentage points and keep them well below recent estimates.
2. In the next budget cycle raise additional revenue. In doing so, take account of: 

• The Budget allocates R305 billion in income support to the highest earning 30%. Eliminating or reducing tax breaks for those earning above R750,000 per year could raise up to R83 billion.
• The reduction of the corporate income tax rate from 28% to 27% has cost R11 – R13 billion a year. 
• Ineffective corporate tax subsidies remain in place, for example, the Employment Tax Incentive.
• Raising VAT would make the tax mix more regressive; it has previously failed to raise the sums needed; and disproportionately burdens the poor and low-income earners.

3. Reduce the cost of borrowing by moving to shorter-term loans which are cheaper, and renegotiate the terms of particular debt. Explore other ways to reduce the cost of borrowing further, for example, via interest rate management and prescribed assets. 
4. Institute a transparent, consultative, and evidence-based expenditure review process. This may result in expenditure cuts in particular areas and spending increases in others. It should include proposals to ‘restructure the state’ as suggested by National Treasury.
5. In the medium term explore implementing a wealth tax. Such taxes have been used in other countries in times of economic crisis and if the Treasury really believes this is a crisis then this is an opportune time;

With appropriate political will, the current budget mismatches are relatively straightforward to resolve. At the same time, we recognise that further pressures are on the horizon. The current impasse therefore provides an opportunity for fundamental reform of South Africa’s fiscal framework. This needs to prioritise the role and potential of the budget in advancing developmental priorities. The budget’s emphasis needs to be on  service delivery, economic growth, employment creation, social protection, and structural transformation. 

The rushing through of ill-considered budget cuts will undermine well-being, as well as South Africa’s ability to thrive in the future, and must be halted.

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INDIVIDUALS

1. Dr Gilad Isaacs – Executive Director, Institute for Economic Justice
2. Nomzamo Zondo – Executive Director, Socio-Economic Rights Institute
3. Professor Pundy Pillay – Professor of Economics, School of Governance, University of the Witwatersrand
4. Professor Ruth Hall – Professor, Institute for Poverty, Land and Agrarian Studies, University of the Western Cape
5. Dr Pali Lehohla – Director, Pan African Institute for Evidence
6. Dr Basani Baloyi – Programme Co-Director, Institute for Economic Justice
7. Professor Elena Moore – Professor of Sociology, University of Cape Town
8. Ronnie Kasrils – Former Minister, Republic of South Africa
9. Dr Omano Edigheji – Associate Professor of Practice, Institute of Pan-Africanist Thoughts, University of Johannesburg
10. Professor Alex van den Heever – Chair, Social Security System Administration and Management Studies, Wits School of Governance
11. Professor Devan Pillay – Head of Global Labour University, Sociology, University of the Witwatersrand
12. Pregs Govender – Senior Affiliate, Africa Gender Institute, University of Cape Town
13. Professor Esther Ramani – Retired, School of Languages, Rhodes University
14. Professor Ron Miller – Emeritus, Mechanical and Aerospace Engineering, Carleton University
15. Dr Peter Jacobs – Strategic Lead, Equitable Education and Economies, Human Sciences Research Council
16. Dr Neva Makgetla – Senior Economist, Trade & Industrial Policy Strategies
17. Telana Botes – Group Account Director, Joe Public United
18. Fairuz Mullagee – Project Manager, Centrow, University of Cape Town
19. Tabitha Paine – Attorney, Centre for Environmental Rights
20. Professor Jill Bradbury – Associate Professor, Psychology, University of the Witwatersrand
21. Dr Keith Ferguson – Chief Engineer, Council for Scientific and Industrial Research
22. Dr Christopher Webb – Adjunct Professor, Institute for African Studies, Carleton University
23. Sisonke Mtyapi – Senior Researcher, Equitable Education and Economies, Human Science Research Council
24. Professor Sam Ashman – Professor, School of Economics, University of Johannesburg
25. Katishi Masemola – Director, Semonomics Research & Policy Institute and Consultant of SEMOs Policy & Strategy Consultants
26. Avril Joffe – Chair of Teaching and Learning, Wits School of Arts, Cultural Policy and Management, University of the Witwatersrand
27. Liso Mdutyana –  Tax and Budget Justice Research Intern, Institute for Economic Justice
28. Josh Rosenberg – Lead Economist, Rose Consulting
29. Pabi Ntshangase – Business Director, Self-Employed
30. George Kean – Independent socio-ecological economist
31. Daniel McLaren – Public Finance Economist, Ilifa Labantwana
32. Neil Coleman – Co-founder and Senior Policy Specialist, Institute for Economic Justice
33. Allan Kolski Horwitz – Co-coordinator, independent cultural collective
34. Francina Nkosi – Director, Waterberg Women Advocacy Organisation
35. Gemma Cronin – Retired, Citizen
36. Professor Salim Akoojee – Associate Professor, Education, University of Nottingham: UK
37. Dr Asanda Benya – Senior Lecturer, Sociologist and Ethnographer, University of Cape Town
38. Merle Favis – Community Development and Donor Specialist, Merle Favis Consulting
39. Na’eem Jeenah – Senior Researcher, The Afro-Middle East Centre
40. Bonus Ndlovu – Movement Building Manager, Oxfam
41. RJ Purshotam – Attorney, CCMA
42. Tatiana Kazim – Senior Researcher, Equal Education Law Centre
43. Yasirah Madhi – Junior Climate Policy Researcher, Institute for Economic Justice
44. Lauren Royston – Director of Research and Advocacy, Socio-Economic Rights Institute
45. Nkateko Chauke – Programmes Director, Oxfam South Africa
46. Dominic Brown – Alternative Information and Development Centre
47. Dr/Adv Jason Brickhill – Director of Litigation, Socio-Economic Rights Institute of South Africa (SERI)
48. Isobel Frye – Executive Director, Social Policy Initiative (SPI)
49. Mrs Kristal Duncan-Willia– Project Lead, Youth Capital
50. Mrs Clotilde Angelucci – Communication and Network Lead, Youth Capital
51. Bilal Mpanzayabo – Coordinator, Civil Society, University of the Witwatersrand
52. Dr Ilan Strauss – Senior Research Associate, University College London
53. Melisizwe Tyiso – Researcher, Economic Social Justice
54. Dr Katharine Hall – Senior Researcher, Children’s Institute, University of Cape Town
55. Carilee Osborne – PhD Student, Sociology, Brown University
56. Dr Vinayak Bhardwaj – Researcher, School of Public Health, University of Witwatersrand
57. Aliya Chikte – Research Associate, University of Cape Town
58. Alia Kajee – Senior Campaigner Public Finance and Climate Justice, 350.org
59. Sidney Kgara – Head of Department, NEHAWU
60. Barry Mitchell – Parliamentary Officer, NEHAWU
61. Tess Peacock – Director, Equality Collective
62. Thokozani Magwaza – Head of Human Resources, NEHAWU
63. Mrs Nhlonipho Sehlangu – Researcher/ Macroeconomic Policy, NEHAWU
64. Irna Senekal – Researcher, Centre for Integrated Postschool Education & Training, Nelson Mandela University
65. Siviwe Mhlana – Researcher, University of the Witwatersrand
66. Professor Michelle Williams – Head of Department, Sociology, University of the Witwatersrand
67. Fundiswa Ndlela – Director, Fundi Ndlela Consultancy
68. Justice Ledwaba – Director, Self-employed
69. Dr Rasigan Maharajh – Chief Director, Institute for Economic Research on Innovation, Tshwane University of Technology
70. Faith Mngomezulu – Administrative Officer, Group Audit and Risk
71. Nokwanda Maseko – Senior Economist, Trade & Industrial Policy Strategies
72. Ebrahim-Khalil Hassen – Senior Researcher, Gauteng City Region Observatory
73. Dr Claire-Anne Louise Lester – Lecturer, Department of Sociology and Social Anthropology, Stellenbosch University
74. Dr Dick Forslund – Senior Economist, Alternative Information and Development Centre
75. Dr Sithembiso Bhengu – Director, Chris Hani Institute
76. Kanyiso Mazibuko – Executive Director, Zabalaza Pathway Institute
77. Casper Nanto – Union Organiser, NEHAWU
78. Silindile Mbhele –  Researcher, Policy Development Unit, NEHAWU
79. Trevor Shaku – National Spokesperson, South African Federation of Trade Unions (SAFT)
80. Zimbali Mncube – Researcher, Institute for Economic Justice
81. Elroy Paulus – SC Member and Treasurer, People’s Health Movement South Africa
82. Dr Lorenza Monaco – Researcher, Institute for Innovation & Public Purpose, University College London
83. Professor Sandra Fredman – Professor of Law, Faculty of Law, Oxford University
84. Siyabonga Hadebe – Researcher & PhD candidate, International Economic Law, Maastricht University, NL

ORGANISATIONS

1. Institute for Economic Justice
2. Pietermaritzburg Economic Justice & Dignity Group 
3. Ilifa Labantwana 
4. Equal Education
5. RightfulShare 
6. Equal Education Law Centre
7. Budget Justice Coalition
8. Socio-Economic Rights Institute
9. SECTION27
10. Alternative Information and Development Centre
11. Social Policy Initiative
12. Black Sash
13. Oxfam South Africa
14. 350.org
15. #PayTheGrants
16. National Education, Health and Allied Workers Union (NEHAWU)
17. Open Secrets
18. Waterberg Women Advocacy Organisation
19. Workers’ World Media Productions
20. Legal Resource Centre 
21. Youth Capital 
22. National Labour and Economic Development Institute (NALEDI)
23. Equality Collective
24. Institute for Economic Research on Innovation