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Budget 2022 hits many of the right notes, but …

01 March 2022 | Story JP Geldenhuys | Photo Supplied

Opinion article by JP Geldenhuys, Lecturer: Department of Economics and Finance, University of the Free State.

The 2022 Budget was delivered this week by Minister Enoch Godongwana against the backdrop of higher inflation, very high and increasing unemployment, increasing poverty and sustained low average annual GDP growth. Budget 2022 hits many of the right notes, particularly regarding the improved state of public finances, as well as the measures that were announced to stimulate economic growth and support ordinary people. However, many uncertainties and risks remain that endanger the outlook for both public finances and growth, many of which are beyond the control of government, such as the future course of the COVID-19 pandemic, geopolitical conflict, and the tightening of monetary policy around the world, but particularly in advanced economies, as a result of persistently high inflation. Other risks to the public finances, such as poorly performing state-owned enterprises (SOEs) and local governments, and high levels of corruption in the public sector, fall squarely within the control of government. But it is debatable whether a government that is losing popular support is willing to expend the political capital necessary to address these risks.

Budget 2022 provides real (inflation-adjusted) tax relief to taxpayers, notably by adjusting income tax brackets for inflation. Additionally, there are no increases in the general fuel levy and the Road Accident Fund Levy (but there is a one cent per litre increase in the carbon tax). Social grant amounts also increase more or less in line with inflation, with the old age, disability, care dependency and war veterans grants increasing by R90 per month in April and a further R10 per month in October, while the child support and foster care grants increase by R20 per month in April. As announced by President Ramaphosa in the State of the Nation address, the social relief of distress grant was extended for another 12 months, with R44 billion being set aside. This means that National Treasury projects that almost 10.5 million people will receive the grant, valued at R350 per month, over the coming year. With the extension of the social relief of distress grant, more than 46% of South Africans now receive a social grant.

The outlook for the deficit and government debt has improved notably since the 2021 Budget and 2021 Medium-Term Budget Policy Statement (MTBPS). The consolidated budget deficit is projected to be 5.7% of GDP in 2021/22, before declining to 4.2% of GDP in 2024/25. Furthermore, the primary balance, which captures the difference between government revenue and non-interest spending by government, is projected to move from a deficit of 1.3% of GDP, to a surplus of 0.6% of GDP by 2024/25. This will be the first time that the primary balance will be in surplus since 2008/9. This development should be welcomed, because in countries like South Africa, where interest rates exceed growth rates, primary surpluses are necessary to ensure that the government debt-to-GDP ratio does not increase continuously. In other words, we need to run primary surpluses to ensure that fiscal policy is sustainable. The National Treasury is projecting that the government debt-to-GDP ratio will peak at 75% by the 2024/25 fiscal year, before decreasing gradually to 70% by 2029/30. The projected peak of the government debt ratio is lower than the peak of 78% projected in the MTBPS of October 2021, which in turn was much lower (following rebasing of GDP) than the peak of 89% projected in the 2021 Budget.

The projected paths of the deficits and debt ratio should ease concerns by ratings agencies and institutions like the International Monetary Fund about the sustainability of South African fiscal policy, which, in turn, will put less upward pressure on the risk premium on South African government bonds. Lower interest rates on government bonds, due to lower risk premia, imply lower debt service costs, which will free up resources that the government can then allocate to spending on healthcare, education, infrastructure, and so on. This is extremely important, because debt service costs (interest payments) have grown very fast in the past few years, and are expected to grow by more than 10% per year on average over the next three years. These costs already constitute almost 14% of total government spending, and are equal to about 20% of total government revenues.

Risks pertain to government revenue and expenditure

While these public finance developments must be welcomed, there are significant risks that threaten these outcomes. These risks pertain to government revenue and expenditure. The most notable of these risks, which are also discussed in the Budget Speech and Budget Review, are the following:

● The poor financial performance and high debt levels of SOEs and local governments. As in the 2021 MTBPS, the Minister again stated that it is time for ‘tough love’ for poorly performing SOEs. The 2022 Budget Speech also echoes the 2021 MTBPS in calling for the rationalisation or consolidation of some SOEs, depending on a review of their financial sustainability and the value that they create for society. Whether government has the political will to refuse further bailouts to unsustainable SOEs, and whether it will follow through on its plans to rationalise and consolidate some of these enterprises, remains to be seen.

● There are also significant downside risks to Treasury’s GDP growth projections, and therefore its revenue projections, due to uncertainties about the domestic electricity supply, geopolitical tensions, monetary policy tightening in advanced economies due to high inflation, and a possible slowdown in Chinese GDP growth. Treasury already revised its forecast of GDP growth for 2021 downwards to 4.8%, following substantial load shedding by Eskom in the second half of 2021, as well as the violence, destruction and looting that gripped large parts of KwaZulu-Natal and Gauteng in July last year.

● Higher than expected commodity prices, and higher than expected tax collections, leading to another substantial revenue windfall, cannot be expected to last in the long term.

● Given low projected growth, rates of unemployment and poverty cannot be expected to decrease substantially in the near future. These high rates of poverty and unemployment will intensify calls for a further extension of the social relief of distress grant, or, ultimately, the introduction of a basic income grant (BIG). These calls are understandable, because the unemployment rate has trended almost uniformly upward since 2009: the latest available official unemployment rate is almost 35%, the expanded unemployment rate, which includes discouraged workers, is more than 46%, while just more than one in every three working-age adults in South Africa is in paid employment. Furthermore, in his recent State of the Nation address, President Ramaphosa stated that “[i]f there is one thing we all agree on, it is that the present situation – of deep poverty, unemployment and inequality – is unacceptable and unsustainable”, thereby providing further impetus to the movement calling for the provision of income support for working-age people in South Africa. However, it should be noted that a 12-month extension of the social relief of distress grant will already add R44 billion to government spending. Further extensions of this grant, or the introduction of a BIG, will have to be funded by permanent tax increases (or cuts to other expenditure items), as alluded to in the Budget Speech (and as stated by Prof Michael Sachs of Wits University in a recent opinion piece on www.econ3x3.org).

● Projected expenditure paths depend crucially on whether the government can get public servants to agree to very low increases in the overall public sector wage bill. A Public Sector Labour Summit, to be held at the end of March, will provide greater clarity on whether public sector unions will agree to the government's proposals.

● Finally, global interest rates are likely to increase in the near future, to combat persistently high inflation, particularly in advanced economies. Increases in advanced economy interest rates will more than likely be associated with higher domestic interest rates, pushing up already high and fast-growing interest payments and debt service costs.

GDP growth rate much too low to reduce rates of poverty and unemployment

The South African economy needs to grow much faster to combat unemployment and poverty. The Minister stated that “[o]nly through sustained economic growth can South Africa create enough jobs to reduce poverty and inequality; enabling us to reach our goal of a better life for all.”

Unfortunately, GDP growth is projected to average only 1.8% per annum over the next three years. This growth rate is much too low to reduce rates of poverty and unemployment, as Isaah Mhlanga shows in a recent opinion piece at www.econ3x3.org. Government acknowledges the need for much greater investment public and private to spur economic growth. In an effort to stimulate private investment spending, the corporate tax rate was reduced by one percentage point to 27%. Government also set aside more funds for substantial infrastructure investment, which will hopefully ‘crowd in’ private sector investment. The Budget also calls for increased and streamlined public-private partnerships (PPPs) to help finance infrastructure investment, in a nod to the funding constraints that government still faces due to high government debt levels and increasing debt service costs. Finally, the Budget also echoes calls in last year’s MTBPS, as well as the State of the Nation Address, to fast-track structural reforms to speed up economic growth, via the Economic Reconstruction and Recovery Programme. Questions remain about whether these reforms can be implemented soon, and whether these reforms, if implemented, will lead to a substantially higher growth path? National Treasury’s own medium-term growth projections cast doubt about how soon and how large it expects the effects of these reforms to be.

All the right notes, but

This Budget Speech does hit many of the right notes about the need for fiscal sustainability, as well as the need for higher economic growth to alleviate poverty and unemployment. Particularly encouraging are the projected improvements in public finances, as a stable government debt-to-GDP ratio, and lower deficits, which will help to curtail the rapid growth of debt service costs, thereby allowing government to spend more on building and maintaining infrastructure, providing quality public services to South Africans and so on. However, the substantial government revenue windfall of the past few months has again allowed the government to avoid announcing its proposed permanent, explicit solutions to long-term threats to the public finances, such as which SOEs (that are not Eskom) will be targeted for rationalisation and consolidation. It is also concerning that, despite the supposed urgency and importance of curtailing the growth in the public sector wage bill, a summit with public sector employees and unions will only take place at the end of March, leaving great uncertainty about the ability of a government that is losing popular support to extract concessions from one of its largest constituencies.

News Archive

During 2011: Highlights at the UFS

2011-12-01

2011 was a phenomenal year in the life of the University of the Free State and the memorable moments will be engraved in the history of this proud institution.

World Universities Forum honours the UFS

The UFS was awarded the World Universities Forum (WUF) Award for Best Practice in Higher Education during 2010.The Best Practice Award recognises the most significant practices of the year around the world. The university’s implementation of a number of interlocking innovations to transform the institution is recognised with the award.

These innovations include: campus-wide racial integration for students; reinvigoration of the academic culture; nurturing of the most promising young scholars by means of the Vice-Chancellor's Prestige Young Scholars Programme; sending 71 first-year students to top American universities to assist with their development into non-racial campus leaders; the revision of the undergraduate curriculum to promote a cross-disciplinary approach to key societal problems; raising the entry requirements; the facilitation of open access to campus leadership through sessions with the Vice-Chancellor and Rector; extension of this spirit of dialogue internationally through the inauguration of its International Advisory Council consisting of key thinkers and practitioners; the identification of 20 of the most dysfunctional high schools in the Free State and the building of relationships with those schools.

This university-school partnership is based on a strict contract of reciprocal commitments to increase the chances of black children attending university. The WUF applauded this as the most innovative step.

New branding for our 107-year old institution

Our university turned a fresh new page with the launch of a new brand that will take the institution on its path to new horizons.

Two primary brands were adopted – an evolved academic crest and a new marketing brand for the institution’s offerings and services. The very foundation of the UFS is built on a dynamic learning environment where academic excellence and the development of leadership qualities. The new brand seeks to adapt to the changing needs of society, without sacrificing its rich history and heritage.

The rebranding process involved one of the most expansive and intensive process of consultations with staff, alumni, Senate, Council and other stakeholders.

The new brand is anchored in the university’s renewed motto “In Veritate Sapientiae Lux” (In Truth is the Light of Wisdom), which has been evolved to embrace the diversity of the community at the university without losing its essence.

Archbishop Desmond Tutu receives an honorary doctorate

One of the great sons of Africa, Archbishop Emeritus Desmond Tutu, received an honorary doctor of Theology and opened the International Institute for Studies in Race, Reconciliation and Social Justice on the Bloemfontein Campus at the beginning of 2011.

The Institute originated in the Reitz incident of 2008 and embodies the UFS’s determination to be a place where reconciliation, forgiveness and social justice would not only be studied, but where it would also be applied. Students and scholars from across the world can study the theory and practice of building societies across the boundaries of race, as well as religion, gender, disabilities and national origin.

By honouring Dr Tutu, the UFS recognises the contribution he has made in the field of Theology through his teachings and the books he has written. The UFS not only honoured him as a moral and religious leader who has maintained his integrity as a Christian, but also as “a great son of South Africa who has made a huge contribution to peace, reconciliation and justice in South Africa and in the world”.

Reconciliation closes book on the Reitz incident

The Reitz incident, that has taken the UFS to front pages and news headlines, could come to closure this year with a reconciliation ceremony between the former students and staff members. The parties involved could meet in private and also took part in a public ceremony with many dignitaries witnessing the closure of the incident and repercussions it had.

Messages of apology were read by Prof. Teuns Verschoor, Vice-Rector: Institutional Affairs, on behalf of the UFS, and Mr Danie Grobler, on behalf of the former students. A message of acceptance of the apologies was read by Ms Emmah Koko on behalf of the workers.

Deputy Chairperson of the South Africa Human Rights Commission, Commissioner Pregs Govender, said of this historic event: “The courage and compassion shown by the workers together with the students’ willingness to embrace the spirit of change have enabled a process of justice, transformation and reconciliation that is an inspiring example for South Africa.”

Grade 12s attend first Leadership Summit

More than 280 learners from all over South Africa and Namibia attended a three-day Leadership Summit on the Bloemfontein Campus in April 2011. The goal of the summit was to enable young leaders to develop their leadership capabilities by looking beyond their normal boundaries.

Prof. Jonathan Jansen, Vice-Chancellor and Rector, addressed the learners on leadership while Mr Louie de Necker, a training consultant, spoke about conflict resolution. Other highlights included a visit to the Boyden Observatory, picnic suppers, an introduction to residence life, a social evening, and a prize-giving ceremony aimed at learners who distinguished themselves as potential leaders during the three-day visit.

UFS honours great teachers

Our university and Sunday Times have joined hands in identifying 150 of the greatest teachers, who moved, inspired and transformed South Africans during their time at school. The project culminated in the book Great Teachers.

These are the teachers who stood out among their colleagues and made a lasting impact on their learners, inspiring them to excel, long after the mathematical equations and English literature tests are forgotten. The book is a powerful account of inspired and inspiring teachers.

All proceeds from the sales of the book will be used to provide bursaries to student teachers of today, who may become the great teachers for tomorrow’s generation.

Graduations now a celebration

By changing its format, graduations are now a festival to celebrate years of hard work and dedication of students and lecturers at our university. Some of the changes include the gathering of the procession on the Red Square in front of the Main Building, from where it moves to the Callie Human Centre. The graduation programme is also filled with music and song items with various young speakers addressing and inspiring the audience.

A total of 83 doctorates were conferred this year, making it the highest number in the history of the university.

African Student Affairs Conference a huge success

The first African Student Affairs Conference (ASAC) was hosted by our university. The conference was attended by delegates from universities across the continent and was aimed to place the focus on issues relating to student affairs in an African context.

Delegates shared and exchanged strategies, ideas and resources, and discussed issues related to the work of student-affairs professionals. A delegate from Nigeria said it was an important conference for Africa and it should become a regular event.

Research published in Nature

A research article on the work by a team under the leadership of Prof. Esta van Heerden, and counterparts in Belgium and the USA, has been published in the distinguished academic journal Nature on Thursday 2 June 2011.

The article – Nematoda from the terrestrial deep subsurface of South Africa – sheds more light on life in the form of a small worm (nematode) living under extreme conditions in deep, hot mines. It was discovered in one of the gold mines in the Free State.

The research can shed some new light on the possibility of life on other planets, previously considered impossible under extreme conditions. It also expands the possibilities into new areas where new organisms may be found.

Postgraduate School is one of a kind

Our Postgraduate School was launched with the aim of bringing research-bases education in line with national priorities and the focus of the UFS Academic Turnaround Strategy of 2010. It spans across our facilities.

The focus of the school is to produce graduates who are global citizens, research literate and able to reflect ethically on the purpose, process and product of research; to improve throughput rates of postgraduate students; and to make the experience of being a postgraduate at our university one which is stimulating, enjoyable and which contributes to the development of people beyond the limits of their disciplines.

Oprah Winfrey now a Kovsie

World attention was drawn to our university when an honorary doctorate in Education was conferred on media icon Oprah Winfrey on 24 June 2011 at our Bloemfontein Campus. The graduation was probably the biggest ceremony of its kind in South Africa, with more than 4 500 people attending.

Our university honoured her for her accomplishments and unparalleled work as a global media leader, as well as a philanthropist with vision and foresight in the field of education and development.

Prof. Jonathan Jansen, Vice-Chancellor and Rector of our university, said: “It is a great privilege for us to be the first South African university to honour Ms Winfrey in this way and to be able to recognise a global icon of her stature.”

UFS doctors make history in South Africa

Two procedures took the UFS to the forefront of the medical world this year.

History was made with the first implant of a special new aortic valve in South Africa. The advantage of this new valve is that it can be implanted percutaneously through a catheter from the groin. This eliminates the need for invasive surgery.

The valve is made from porcine pericardium (tissue derived from pigs) and is mounted on an expandable stent, which is threaded along an artery, until it reaches its desired position. The valve is especially useful in older patients who suffer from aortic valve disease and pose a high surgical risk. It also reduces hospitalisation time.

A rare malignant tumour was also removed in groundbreaking heart surgery. What makes this operation unique, is that the suspicious mass, identified in the heart of a 51-year old man, was rapidly growing into a highly invasive cardiac tumour seen in a small number of patients worldwide.

In the highly complex, 10-hour operation the entire right heart chamber had to be removed and the heart reconstructed.

School of Open Learning adds value

The activities of the new school are driven by a central principle: opening up access to those who have not had the opportunity to study at a higher-education institution due to geographical location, socio-economic circumstances or other factors.

Programmes are delivered through a blended-learning model, which blends contact teaching with distance education.

The school will collaborate with our various faculties, and is managing the continuing education-sponsored endeavours of the Faculty of Education. These include projects for in-service training of teachers in Mathematics, Natural and Physical Sciences, Languages, Literacy, Economic and Management Sciences, Technology and various areas of Management and Leadership.

Second group of young leaders abroad

A second group of first-year students in the Leadership for Change Programme visited universities in the USA, Europe and Asia. Our university could extent the programme to 150 students, up from 71 in 2010.

These students are seen as a leadership core, not only for their university life, but also in public life outside the university borders.

The main purpose behind the programme is to expose students to positive models of racial integration. Their experiences will go a long way towards changing and enriching the minds of young leaders, who have committed to building a truly non-racial society in South Africa.

Odeion School of Music launched

Our former Department of Music transformed into the Odeion School of Music. The name Odeion name portrays not only an excellent asset in the Free State, but also nationally and internationally.

The school’s new name bears the respected Odeion brand and a number of successful and respected ensembles operate under this brand. These include the residential Odeion String Quartet, student ensembles, the Junior Odeion String Quartet, the Odeion Sinfonia, and the Odeion Choir.

The formation of the school paths the way for more flexibility to complement its profile with new developments. These include the application of prestigious international experts as artistic fellows, membership to progressive European, jointly-developed degree programmes and curriculum development initiatives, the founding of a chair in Orchestra Conducting, a master’s degree in Arts Management, as well as the incorporation of bio-kinetics in the teaching methodologies of performance practice.

World-class Chemistry facilities opened

World-class Chemistry facilities, with state-of-the art equipment, opened on the Bloemfontein Campus.

The upgrading of the facilities and addition and replacement of equipment were the single biggest investment at our university in a long time.

Specialised research by the Department of Chemistry includes X-ray crystallography, electrochemistry, synthesis of new molecules, the development of new methods to determine rare elements, water purification, as well as the measurement of energy and temperatures responsible for phase changes in molecules, the development of agents to detect cancer and other defects in the body, and many more.

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