Budget 2022 | ‘Create and retain jobs, expand income support, improve services’

As the finance minister prepares to table his budget for 2022/23, the Institute for Economic Justice (IEJ), together with civil society, continues to advocate for a human-centred budget. We believe that the budget and the budget processes, are critical to the advancement and protection of human rights.

In this year’s budget, the minister should concentrate on the importance of the complementarity between job creation and retention, maintaining and expanding income support, and sustaining and improving public services. The three elements collectively should serve as the foundation for a comprehensive development strategy that is inclusive and sustainable, balancing dignity and wellbeing with a robust fiscal position.

In line with the above-mentioned foci, our expectations for budget 2022/23 are:

Social relief of distress grant and pathways towards universal basic income

The IEJ welcomes the extension of the social relief of distress (SRD) grant. However, in its current form, the grant is insufficient to alleviate the scale of the crisis of deprivation we face. We need greater clarity on its improvement from this financial year’s budget announcement to ensure it will effectively reduce poverty.

For instance, a flat R350 does not include an adjustment for inflation and, more importantly, is not linked to any objective measure of poverty.

This is why we have recommended to government that the SRD be transitioned from the temporary legal framework of the state of disaster to become a permanent provision set at the food poverty line of R624 and progressively increased to the upper bound poverty line of R1,335.

It will also be important to understand how the SRD grant extension will be financed. The latest National Treasury data show there is a R200bn higher-than-expected revenue windfall driven by commodities. This means the extension of the grant even at the food poverty line can be absorbed by this increased revenue.

The IEJ’s universal basic income guarantee (Ubig) pathways demonstrate the SRD grant can be progressively financed without impacting spending on public services or hampering job creation.

Importantly, the IEJ is against the increase of Value Added Tax as a financing measure as this will have a negative affect on disposable income for everyone, especially low-income households.

The finance minister must also commit to the urgent expansion of the SRD grant into a universal basic income guarantee and engage civil society on the pathways towards a Ubig. This should include reviewing evidence on Ubig, its design and consideration of new forms of tax to raise and redistribute revenue for financing it. The IEJ’s financing proposals for the Ubig show fiscal space can be created for its implementation.

Jobs, industrial support and support to SMMEs

With phases one and two of the presidential employment stimulus (PES) having reached more than 800,000 beneficiaries, we are expecting an update on its allocation for 2022/23. While the magnitude of jobs created is an achievement, the quality of jobs and career pathways of the PES have been criticised.

Participants in the programme’s largest component, the Basic Education Employment Initiative, have complained about a lack of transfer of skills, the short-term nature of the jobs, and a lack of pathways into secure employment. This programme must be scaled up and the rollout improved to make real headway in alleviating the unemployment crisis.

In his state of the nation address on February 11, President Cyril Ramapahosa said the Loan Guarantee Scheme will be reintroduced. This scheme was a failure in the initial phase, with poor uptake by small businesses.

Small businesses play an important role in employment and an improved scheme may aid their recovery from Covid-19 and lead to job retention. The type of finances made available to businesses and the criteria will be important to improve uptake and we are looking forward to more details on this from the finance minister.

Recognising the role small businesses play in employment, the president said the Youth Employment Incentive will be reformed to include small businesses. However, there is no evidence to suggest the employment taxi incentive (ETI) works in alleviating unemployment in its current form. Rather, youth unemployment is more than 70% for those between the ages of 18-24.

In a 2014 study by the UN University World Institute for Development Economics Research, it was found the affect of ETI on youth unemployment was statistically insignificant. More recently, it has been found support for the policy was based on false evidence which was not peer-reviewed.

The result has been a policy that, instead of alleviating youth unemployment, has effectively subsidised businesses, instead of using these resources to support policy supported by evidence. This is why the IEJ has proposed the cancellation of this incentive and has shown this can raise up to R4.9bn in revenue to finance a Ubig.

A thorough review of the incentive’s affect has to be undertaken before it can be expanded and more resources are redirected towards it.

The president also underlined the importance of industrialisation. Despite this acknowledgment, industrial policy support has been on a decline.

In this budget, we call for increased allocations for sector-specific industrial policy, including master plans, that place emphasis on the protection and creation of quality jobs. This remains vital to ensure a just recovery and reversal of the deindustrialisation trend.

Increased funding must be directed towards master plans as this is essential to support greater localising of production inputs, which will in turn boost manufacturing revenue and support job creation.

Public services

The IEJ and broader civil society have emphasised the overall importance of well-resourced public services, alongside grants and job creation, to a sustainable development strategy. There can be no dignity and improvement in the standard of living without access to quality public services.

The medium-term budget policy statement (MTBPS) proposed cuts in government programmes (consolidated non-interest expenditure, that is, total spend excluding debt servicing costs) by 3.3% in real terms on an annual basis over the medium term. We see in the midst of a severe economic and social crisis, real per person expenditure falls from R26,140 in 2020/21 to R25,117 in 2024/25.

Public services have been deteriorating due to budget cuts and this will only deepen poverty, unemployment and inequality.

By way of example, there are not enough ambulances to take people to hospitals in the Eastern Cape, schools have dire infrastructure and pit toilets, despite court orders to eliminate these, and informal settlement upgrading necessary to ensure people live in dignity is proceeding at a snail’s pace, while public infrastructure from roads to government buildings such as hospitals are suffering from a lack of budgeting for maintenance.

Given the improved revenue, we hope the proposed budget cuts from the MTBPS are reversed.

The above-mentioned focus areas are not exhaustive of all important issues to be considered in the budget. However, it focuses on a few strategic approaches and priority areas the IEJ assesses as crucial to SA’s social and economic recovery from the pandemic.

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