COSATU Submission on

Intergovernmental Fiscal Review

Presented to the Select Committee on Finance, 12 October 1999

Table of Contents

  1. Introduction

  2. Summary of COSATU concerns

  3. COSATU’s position on the budget process

  1. The overall logic of the Review

  2. Macroeconomic parameters

  3. Capital and current expenditure

  1. Collective bargaining

  2. Fiscal relations between national and provincial governments

  3. Infrastructure development

  4. Way forward

Appendix: Seventh Interim Report of the Commission of Inquiry into certain Aspects of the Tax Structure of South Africa


  1. Introduction

COSATU welcomes the opportunity afforded us by the Select Committee on Finance to make a submission on the Intergovernmental Fiscal Review ("the Review"). We will not be commenting on the Review on a chapter-by-chapter basis, but will speak to certain themes relevant to the Review.

COSATU welcomes the publication of the Review. This together with the National Expenditure Survey, marks an improvement in budget accountability and transparency. The data provided in the Review will also be useful to organs of broader society in facilitating participation in development processes. We also appreciate the commitments made in the Foreword to the Review to include financial data from local government and to shift towards a more results-oriented budgeting system in future.

The Review notes several "good budgetary practice" measures which have been put in place. These include regular reporting, better financial management, and better planning. COSATU supports these steps, and the commitment to tighten up wastage, corruption, and sub-optimal spending of scarce resources.

We do, however, have a number of concerns about the Review, primarily arising from its conceptual approach. In broad terms, the Review both reflects and promotes the notion of "fiscal discipline" shaping and limiting socio-economic delivery. We believe that it will be difficult if not impossible for government to implement its mandate of "accelerating change", as envisaged by President Mbeki in his opening speech to parliament, in the context of the fiscal approach reflected in the Review. The following section summarises our key concerns with the Review.

  1. Summary of COSATU concerns

Our proposals are listed in Section 10 of this document ("Way Forward").

  1. COSATU’s position on the budget process

  1. The overall logic of the Review

  1. Macroeconomic parameters

  1. Capital and current expenditure

  1. Collective bargaining

  1. Fiscal relations between national and provincial governments

  1. Infrastructure development

    Adequate government spending on infrastructural development is crucial not only for the meeting of current basic needs but also for long term economic development. Capital expenditure can have significant positive "multiplier effects". It has the potential to stimulate local demand and to boost local growth through realising forward and backward linkages to a host of other sectors. Public capital expenditure can "crowd in" private expenditure by providing suitable infrastructure and boosting economic activity. It can also be used as leverage by the state for shaping economies in targeted areas and sectors. Capital spending, properly managed, is thus a true investment in building a prosperous economy. Increasing capital expenditure is/was one of the key pillars of the GEAR strategy, but this was not realised in actual budget allocations. This has been a function of the cuts in expenditure driven by the tight deficit:GDP targets.

    A failure to maintain and upgrade infrastructure in the current period will also be more costly in the long run. For example, once roads reach a certain point of degradation the costs of repairing them rise exponentially as compared to what the initial cost of maintaining them could have been.

    In this context we are particularly concerned about the falling capital expenditure reflected in the Review. An example of this is expenditure on transport, roads, and public works - so crucial for integrated economic development. 1996 to 1999 saw a 24% fall in real expenditure on these items across all provinces. Of particular concern is the fact that in provinces such as the Eastern Cape and Northern Province, which are most in need of development, the cuts were especially high – by 40% and 31% respectively7.

    Looking at aggregate capital expenditure as a proportion of provincial budgets, this has almost halved from 1996 / 7 to 1999 / 00, falling from 8.67% to 4.65%8. Although this has fallen for every one of the provinces, the cuts tend to be sharpest in provinces most in need of economic development. Although conditional grants have propped up capital expenditure to a limited extent, planned capital expenditure within the equitable shares is set to fall further over the medium term. Conditional grants mostly protect capital spending within the social service budgets, and not capital spending within areas such as transport or agriculture.

  1. Way forward

    COSATU would like to table the following principles and proposals on the issue of intergovernmental fiscal relations and provincial finances.


 

Appendix: Seventh Interim Report of the Commission of Inquiry into certain Aspects of the Tax Structure of South Africa

COSATU did not make a submission at the Select Committee hearings on the above issue as we have not yet had a chance to study the detail of the proposals. We would like, however, to put forward the following principles with which we feel any proposals on provincial taxation should be compatible:


Footnotes:

  1. In the words of the Minister of Education.

  2. COSATU has noted with concern recent reports that the surplus SASRIA funds are to be used to reduce government debt. COSATU had tabled a proposal at the Presidential Job Summit that these resources be used for job creation projects and programmes. Particularly in the light of the ongoing job losses, we do not accept that debt reduction is the top priority for expenditure at the moment. We thus propose that the deployment of the SASRIA funds be put on hold until consultation with labour and business, where we will recommend their use primarily in job creation and other development programmes.

  3. Intergovernmental Fiscal Review p2.9.

  4. Department of Public Service and Administration (1998) "Exchequer Report"

  5. In one example of the police service, the number of policemen and women has fallen by 8.6% over the period 1995 to 1998(Source: Department of Finance (1998) "MTEF Integrated Justice Sector Report")

  6. Medium Term Policy Statement 1998

  7. IDASA (1999) "A Review of Provincial Budgets 1996/7 - 1999/000"

  8. ibid.

  9. The three labour federations (COSATU, NACTU, and FEDUSA) will shortly be tabling proposals in the Public Finance and Monetary Policy Chamber of NEDLAC on overall budget reform, focusing on increasing the meaningful participation of parliament, NEDLAC, and civil society in the budget process