Peoples Budget Coalition response to the National Budget, February 23 2010
The People's Budget Coalition is a coalition of trade unions, churches, civil society organisations and NGOs groupings under the auspice of the Congress of South African Trade Unions (COSATU), South African Council of Churches (SACC) and South African Non-Governmental Organisation (SANGOCO).
We have taken note of the budget announced by the Minister of Finance.
The Peoples Budget has for many years been campaigning for the adoption of fiscal and monetary policies that will make a decisive intervention in the battle against unemployment, poverty and inequalities.
We have expressed disappointment over and over again about the inappropriate framework that has been adopted by the government since 1996. This conservative and ultra cautious framework largely remains government's stance even today, despite a promise to adopt a ‘business unusual' approach. Largely despite some welcome shifts, that we will refer to, this year's budget remains trapped in the conservative, ultra cautious and pro-business mould and therefore it is still to qualify as a people's budget.
Our challenge
The persistence and increase in unemployment: Unemployment among Africans was estimated to be 38% in 1995 and it stood at 45% in 2005. Overall, the unemployment rate in the South African economy was 31% in 1995 and increased to 39% in 2005[1]. Whilst this somehow improved since then, unemployment remains extraordinarily high at 36%.
Poverty incidence remains high: There is no official poverty line for South Africa. Yet, based on measures that are sensitive to household size, one study found that 57% of individuals in South Africa were living below the income poverty line in 2001, and this remained unchanged from 1996[2]. But measures that assume individuals need R322 a month to survive show that individual poverty has declined from 52.5% to 48%[3].
Redistribution of income has not occurred and inequalities have worsened: Besides the decline in the real incomes of African households between 1995 and 2005, income inequality has increased across the board. In 1995, the Gini coefficient stood at 0.64 but it increased to 0.68 in 2008[4]. The share of employees in national income was 56% in 1995 but it had declined to 51% in 2009. The top 10% of the rich accounted for 33 times the income earned by the bottom 10% in 2000[5]. This gap is likely to have worsened, given the fall in the share of employees in national income and the global economic crisis of 2008[6]. Approximately 20% of South Africans earned less than R800 a month in 2002, the situation is worse for Africans. By 2007, approximately 71% of African female-headed households earned less than R800 a month and 59% of these had no income; 58% of African male-headed households earn less than R800 a month and 48% had no income. Even the Minister of Finance has acknowledged that 50% of the population lives on 8% of national income in South Africa[7].
Income inequality is still racialised, and has deepened within racial groups. An average African man earns in the region of R2 400 per month, whilst an average white man earns around R19 000 per month.
The means of production and power remain concentrated in white capitalist hands: Crucial sectors in the economy continue to be dominated by a few large conglomerates with cross directorships.
The structure of the economy remains mineral-dependent and is now finance-led: The economy is still very much reliant on mineral exports for foreign exchange earnings.
Control of the economy is still in white hands: Top management and senior managers continue to be predominantly drawn from the white population. This perpetuates historical networks that determine the probability of promotion and recruitment.
The health profile of the population has deteriorated: The life expectancy of a white South African now stands at 71 years and that of a black South African stands at 48 years, according to the South African Institute of Race Relations Survey (2009).
The crisis in education persists and the quality of education is declining: What is of major concern is that 12-year olds in South Africa perform three times less than 11-year olds in Russia when it comes to reading and 16-year olds in South Africa perform three times less than 14-year olds in Cyprus when it comes to mathematics[8]. Nevertheless, white learners perform in line with the international average in both science and mathematics, which is twice the score of African learners. It is estimated only 3% of the children who enter the schooling system eventually complete with higher grade mathematics, 15% of grade 3 learners pass both numeracy and literacy, 70% of our schools do not have libraries and 60% do not have laboratories, 60% of children are pushed out of the schooling system before they reach grade 12.
The budget speech hardly articulates this South African reality. In fact this reality is hardly comprehensively and adequately articulated in the government's New Growth Path. This is our main criticism of that government strategy. We avoid making this rather embarrassing assessment of our development precisely because it demonstrates that our responses so far have been wholly inadequate and have amounted to fiddling on the outskirts when bolder and more decisive interventions were needed. This is unfortunately what the budget speech does - fiddling on the outskirts whilst Rome is burning.
Our biggest criticism of government economic policies remain their macro-economic framework, in particular the continued focus on inflation targeting and reducing the budget deficit which robs the government of the resources so desperately needed to address the structural weaknesses we have pointed out above.
These structural challenges will simply not be resolved by this hesitant and overly caution stance adopted. This hesitant approach is demonstrated by the speech correctly articulating bold and decisive steps taken by Brazil and South Korea amongst others in relation to the introduction of tax or regulatory measures to deter investment flows and currency speculations. Yet instead of following this bold example our government, with much worse levels of unemployment, poverty and inequalities, only raises it as a possibility for further consideration. What a missed opportunity! No wonder Brazil's President Lula in just ten years achieved so much for his country whilst our challenges have worsened on key issues as reflected above.
Specific comments on the programmes
Jobs and youth unemployment
We have over and over warned that unemployment, in particular youth unemployment, constitutes the biggest threat to our stability. We have pointed out repeatedly that the country is sitting on a ticking time bomb that is already starting to explode.
Accordingly we welcome the continued focus on addressing unemployment in particular youth unemployment. This is in line with the State of the Nation Address.
However the measures contained in the budget speech fall far short and will simply not address the structural unemployment crisis we face. This budget overall will not help us address the persistent structural weaknesses of our economy. The budget speech (see page 8) focuses a "steady employment gains of about 2% a year". This will simply not be adequate to meet the government's target of creating 5 million jobs in the next ten years.
Government simply lacks political will to confront the structural crisis we face in relation to youth unemployment. Youth unemployment is not only a structural problem linked to the structural crisis we have pointed out but also to the education crisis. No matter the amount of wage subsidies and tax incentives government offers to business, year in year out, it will not address this structural nature of youth unemployment.
We remain opposed to youth wage subsidies and believe that government lacks capacity as shown by countless examples to enforce its own laws. The youth wage subsidy not only introduces a two-tier labour market system that we oppose but will be abused by the unscrupulous employers who will keep an army of young workers permanently and replace secure and better paying full time jobs currently held by older workers. This in return will undermine the government's stated objective of creating decent work, addressing inequalities and poverty.
Having said that we welcome the amounts announced focusing on this critical challenge. At least this year government has moved more to put resources aside, which will make a contribution to dent unemployment.
We continue to support the public employment programme. The R75bn is critical to supporting public employment programmes as a transitional measure towards full and decent employment. It is important that government address many of the shortcomings in the public employment programmes, more specifically the development of skills to support better employability of EPWP and CWP participants.
While we welcome this tax incentive on investment in manufacturing, we remain wary about the impact this may on employment, given our past poor experience on tax incentives and low employment creation. While previous tax incentives emphasized job creation this has not been achieved, with higher investment in capital intensive manufacturing. A clearer job creation criteria linked to an extensive monitoring and evaluation programme will be required for a successful tax incentive.
Education and skills development
We welcome that education remains the biggest item of expenditure. Many studies which reveal that our country is spending more resources on education and health than many developing economies yet we perform worse than they do as reflected above. There are leakages in our system that need to be addressed. Adequate Planning, Monitoring and Evaluation must be the cornerstone of an effective and quality education system.
In order to address this problem government should move towards zero budgeting, so that all departments, in particular education and health will track every cent of public money to ensure there is no leakage.
Above all we hope that a more detailed policy statement to address not only the quantity challenge but the quality challenge will be articulated by the Minister. We are keen to hear how this budget will be distributed so that we can realise the President's ambition to do away with mud schools. We also hope that the budget is adequate to ensure students and teachers are properly supported with libraries, laboratories, safer schools, etc. We welcome and at the same time hope that the R8.3 billion over the MTEF period is adequate to address these massive infrastructure backlogs.
The R14 billion towards FET is in the right step towards free education and much needed skills and development for young people.
However, the R25bn for skills is questionable given the current poor state and functioning of many SETAs. This appears to be just throwing money to the problem. We hope that the budget allocation will help towards SETA restructuring and deliver on much needed skills, particularly for young workers.
We note with concern that no clear provision is made in the budget for qualifying final year students or the exemption of fees for " ...students in further Education and Training Colleges who qualify for financial aid.." [9] as indicated in the State of the Nation address.
On Health:
We welcome the significant jump in the health expenditure budget over the previous MTEF period and the implementation of the ten-point plan that would lay the basis for the NHI. The significant budget increase over the period has failed to address the most basic problems in the public health delivery system. Public health facilities lack skilled managers to run hospitals, a lack of basic medication and equipment and many other challenges.
We stress the need to zero budget the health for the reason pointed out above.
We welcome the commitment that government will consult the stakeholder on the funding of the NHI but reject strongly the consideration of using VAT and individual taxable earnings of low income earners above the tax threshold. VAT is extremely regressive tax that punishes the poor more than the rich.
On Rural Development:
Government, at all levels, continues to pay "lip service" to rural development and land reform. Should we continue to fail in supporting rural job creation strategies a realistic and well supported local economic development strategy will continue to see the ever increasing migration of young workers from rural areas into the city centre. This will undoubtedly continue to place pressure on infrastructure and risk food security in our country.
On Crime and Corruption:
We welcome the initiatives and budget announcement that would reduce crime and corruption in all spheres of society. In particular, we warmly welcome the steps towards tightly regulating tendering procedures. These are important steps in the right direction to combat corruption.
More and visible policing is critical to reducing crime, as well as improving the skills of all investigative units. Lastly, the allocation towards improving technology in policing systems is well received by the PBC.
On Transport:
Poor rail infrastructure and investment at an industrial and commuter level remains appalling. The allocation of R80bn over the MTEF will not be sufficient considering the excessive cost of just the Gautrain alone, backlogs in public transport and transport infrastructure. The R2.5bn amount allocated for public transport systems and infrastructure in municipalities is completely inadequate to support inclusive economic growth and development.
On Social Security:
We continue to urge for the release of government's comprehensive proposals on social security. This is long overdue and requires urgent attention.
It is disappointing that while the speech notes that countries such as Brazil, South Korea and Thailand introduced measures to counter high capital inflows and currency speculation the Minister was unable to announce anything more decisive than its intention to "monitor the adjustments" made in those countries. It would have been more appropriate to have used this opportunity to introduce taxes on short-term capital inflows and a financial transactions tax.
On Taxes:
We note that whilst total tax revenue increased for the 2010/11 period, this has been disproportionately achieved through reliance on personal income tax and VAT with corporate income tax revenue performing lower than originally projected. We would have preferred for the budget to disclose a more redistributory tax model that would not only have expanded the range of zero VAT rated goods, but would have introduced a progressive tax system that would target the "super-rich" as well as taxes on luxury goods especially those that are imported.
On Financial Regulation:
We note that there is an intention to embark on a policy review process in relation to financial and investment regulation, which we will engage with once details are made known. We also support the long overdue introduction of measures to counter exploitative banking charges.
The Peoples Budget Coalition will provide a more detailed response to the National Budget.
References:
[1] The Role of the Working Class and Organized Labour in Advancing the National Democratic Revolution, ANC Policy Discussion Document, 2007.
[2] Fact Sheet No1-Poverty in South Africa, Human Sciences Research Council, 26 July 2004.
[3] Towards a 15-Year Review, The Presidency, 2009, p.18. R322 a month is said to be a "high poverty line", but a crude calculation shows that this cannot cover items such as cooking oil, soap, sugar, tea, clothes, transport etc. if an individual buys 12.5kg of mealie-meal, 4 full chicken portions and 12 loaves of bread.
[4] Development Indicators 2009, The Presidency, p.25. These are based on Income Expenditure Surveys.
[5] Human Development Report: Fighting Climate Change-Human Solidarity in a Divided World, 2007/08, p.283.
[6] In the Budget Speech 2010, the Minister of Finance notes that in South Africa "income inequality is among the highest in the world; and half of our population survives on 8% of national income". Nevertheless, the policy proposals that are contained in the Budget Review 2010, completely fail to address this problem.
[7] See Budget Speech 2010.
[8] It is due to such realities that the ANC noted in 1969: "We have suffered more than just national humiliation. Our people are deprived of their due in the country's wealth; their skills have been suppressed and poverty and starvation has been their life experience. The correction of these centuries-old economic injustices lies at the very core of our national aspirations".
[9] President of The Republic of SA, State of the Nation Address, 10 February 2011
Issued by COSATU, February 24 2011
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