CENTRAL COMMITTEE PREPARATIONS 2 June 1998 The Congress of South African Trade Unions' (COSATU) second highest decision-making body (Central Committee) which meets in between the National Congress will sit for the first time from 22-25 June 1998 at Randburg Towers in Johannesburg. The Central Committee is a new structure set by the COSATU 6th National Congress last year. The structure substitutes COSATU Policy conferences whose resolutions can only be implemented once they have been ratification by the Central Executive Committee. Unlike the Policy Conferences the Central Committee has been given constitutional powers, therefore the policies adopted by this structure can only be changed by the COSATU Congress. The Central Committee was tasked by the congress to develop policies around socio economic issues. Its powers on the socio-economic issues will therefore be equal to those of the National Congress. In preparation for the Central Committee meeting broad categories of issues will be discussed. A document that attempts to integrate the resolutions received from COSATU affiliates with other policy positions of the federation has been developed. This document takes into consideration policies adopted at the previous policy conferences (1992 Economic Policy Conference, 1993 Health and Safety Conference, 1995 Health, Safety and Environment Conference, 1996 Living Wage Conference and the May 1997 Policy Conference.) In addition it incorporates the socio-economic section of the September Commission Report, Secretariat Report of the 6th National Congress and the Labour proposals on the Presidential Job Summit. Today we have decided to release only three sections of the document mainly: - Broad Macro Economic Policy - The Fiscal Policy - And the Monetary Policy. THE 1999 ELECTIONS Another agenda item of the Central Committee will be the preparation for 1999 Elections. In less than 12 months South Africans will be going to the polls for the second democratic elections. What role COSATU will play in the elections will have a major impact on the outcome of the elections. Obviously, that role should be guided by the sixth National Congress resolutions. In a resolution on the Tripartite Alliance the congress resolved that: "Despite the shifts on the part of the ANC in government and despite other obvious weaknesses of the Alliance, such as the lack of a common programme, lack of accountability and co-ordination, the ANC-COSATU-SACP alliance remains the only vehicle capable of bringing about fundamental transformation for the country. More than ever before, COSATU should maintain and strengthen the Alliance with the ANC and the SACP. An election platform must be developed at Alliance level for the 1999 elections. The Central Committee in developing an approach to General elections and support for the ANC will also discuss the following: · Providing financial resources; · Agreement on the candidates list process; · The key policies for the election manifesto; · Electioneering support for the ANC at workplace and in communities; · Implementation and review structures in regard to policies of governance; The Theme is "Defend, Consolidate and Advance Social Transformation". The theme for socio economic resolutions is "In defense of our jobs and for job creation". COSATU STATEMENT ON THE PUBLIC SECTOR JOB THREATS AND IN SUPPORT OF TEACHERS' STRIKE 1. Public Sector Jobs Threatened COSATU has noted the reports from various government to the effect that 55 000 public servants will be thrown into the streets including 10 000 post to be freezed by the police management. We have warned that as COSATU we shall resist these massive retrenchments both in public and private sector. We find it provocative for the government to propose massive job cuts on one hand then talk about job creation and Job Summit on the other hand. Above all, we find it unacceptable that the government is making these threats whilst the Alliance is in the middle of a debate to find a uniform approach on the State Restructuring. The Central Committee will develop a militant programme of Action that will include our members in a campaign to defend their jobs. 2. SADTU STRIKE The Congress of South African Trade Unions (COSATU) is dismayed by the intransigence of government to meet the teachers' demands. We are also disturbed by the pressure that Bishop Ndungana is putting to teachers asking them to withdraw their planned strike action. It is wrong for the Bishop to appeal to teachers to go back to work and not make an appeal to government to find an amicable solution to the crisis. COSATU and SADTU are available to resolve the dispute before teachers embark on the strike. However, if government continues to be rigid in its approach, COSATU will not have an alternative but to stand with its members. The Department of Education's unilateral declaration of policy (on rationalisation of education, termination of temporary teachers' services and further threats of retrenchments of permanent teachers) seeks to undermine government's own law- the Labour Relations Act. The government's attitude of using Collective Bargaining when there is consensus, and using alternative strategies when there is not, is unacceptable. Negotiating in bad faith is not going to take this country anywhere. SADTU is being demonised because it is taking a stand against practices of the Education Department, which it finds unacceptable. It is high time that the government trains its negotiators to understand the LRA. We will not accept a situation where the government does not respect this country's laws. We are aware of the consequences of SADTU's planned action. The decision to go on strike is not an easy one for any worker or trade union. If the government was more willing to find solutions to this crisis, SADTU would not be forced to take this unfortunate position. COSATU calls on its members and communities to stand behind our teachers in their fight for job security. FINAL VERSION OF THE DRAFT RESOLUTIONS TO THE CENTRAL COMMITTEE - 22 - 25 JUNE 1998 30 MAY 1998 Introduction 1. The 6TH National Congress delegated to this Central Committee all socio-economic resolutions. The powers of this Central Committee on socio-economic issues is therefore equal to those of the National Congress. This means it can change any socio-economic policy of the federation. Once policy is adopted by the Central Committee it can only be changed by the next National Congress in the year 2000. 2. This document attempts to integrate the resolutions received from affiliates with the other policy positions of the federation as adopted at the previous policy conferences (1992 Economic Policy Conference, 1993 Health and Safety Conference, 1995 Health, Safety and Environment Conference, 1996 Living Wage Conference and May 1997 Policy Conference). 3. In addition we also used the socio-economic section of the September Commission, Secretariat Report to the 6th National Congress and Labour proposals on the Presidential Jobs Summit. 4. Where necessary we have used some of the policies adopted by the CEC and our submissions to parliament on various issues. 5. The approach outlined above was endorsed by the Central Executive Committee held on the 05-06 May 1998. 6. Only where it was absolute necessary for reasons relating to the correctness of the facts or cohesiveness of the document, the Resolutions Committee made changes to some of these policies. The Resolutions Committee changes are written in italics. 7. The section on Social Security, in particular retirement funds, State Assets Restructuring. Public Sector, Communications, Local Government, Water and Transport are all weak or in some cases have not been dealt with at all. Affiliates in discussing this document should seek to improve these sections. The Resolutions Committee will meet on the 19 June 1998. Affiliates should send their amendments to this committee so that we minimise time wastage at the Central Committee. A suplimentary document shall be compiled and circulated at the Central Committee. Theme: In Defence of our Jobs and for Job Creation BROAD SOCIAL AND MACRO-ECONOMIC POLICY 1 Vision 1.1 Transforming of four sectors Industrial development, redistribution and economic democracy should be implemented through specified transformation in different sectors of the economy. These sectors are: 1.1.1 The public service 1.1.2 The state sector 1.1.3 The social sector and 1.1.4 The private sector 1.2 The activist, developmental state The state should act as a key economic agent. The state is the biggest employer, consumer and investor in the economy. Through fiscal and monetary policies and composition of its budget, it exerts a tremendous influence on the economy. An active, interventionist state is necessary to achieve our goals of economic development - in other words, to overcome poverty and redistribute power, wealth, income and economic opportunity from a small minority to the majority of the citizens. 1.3 Link to Socialism There has to be a link between our Economic Policy and our vision of socialism. The programme we articulate should be socialist-oriented and should define economic policy in terms of meeting the needs of citizens and further the culture of solidarity, community and social responsibility, open up the space for economic democracy and redistribute wealth, income, assets, opportunities and power. We envisage an economy composed of the public service, a state sector, a social sector and the transformation of the private sector into a stakeholder sector. We are therefore proposing a significant public and social ownership in the economy as distinct from private ownership. 1.4 Link to the RDP The RDP remains the cornerstone policy of COSATU. In many respects, the vision outlined in this document is a restatement of the fundamentals of the RDP. However, the RDP is weak in describing a set of economic policies for implementing its vision. We seek to build the on RDP by outlining a coherent set of economic tools and strategies for achieving our vision. 1.5 Reclaiming Redistribution The aim of economic development should be to overcome poverty. The fundamental goal of economic policy should be redistribution and generating economic growth. Redistributive policies should focus on three goals: 1.5.1 Increase productive activity in the real economy, producing more wealth, creating more and better jobs and increasing the range and variety of economic opportunities for the citizens of South Africa. 1.5.2 Meet the needs of all citizens of the country - the need for work and income, for health, shelter, education, decent childcare and provision for old age, as well as a high quality of community life. 1.5.3 Economic democracy (redistribution of power) - meaning the participation of all working people in determining the conditions of their economic activity and general priorities of economic policy. The focus of our economic policies should therefore be on: · Industrial development · Public service delivery and · Economic democracy Source: September Commission 2. Broad Macro-Economic Approach 2.1 There are a number of key areas of macroeconomic policies which should support our vision and broader employment-creation strategy, these are listed below: 2.1.1 Maintain and expand demand for domestically produced goods and services. 2.1.2 Meet increased demand through an expansion of the productive capacity of the economy, which in turn would generate new jobs. 2.1.3 Stimulate demand by lowering interest rates, pursuing redistributive fiscal policies, and developing effective strategies to boost exports. 2.1.4 Create an environment conducive to boosting productive capacity of the economy. Increase investment to ensure that increased demand can be met though domestic production, and not though greater levels of imported goods. 2.1.5 Ensure that the parameters of fiscal policy are consistent with employment creation and retention strategies. Avoid imposing rigid and rapid deficit reduction targets which limit public expenditure and infrastructural development. Source: Labour's proposals on Jobs summit MONETARY POLICY Vision 1. Monetary policy is an important instrument in driving economic policies and delivery of social services. GEAR and government's practises focusing on phasing out exchange control, high interest rates, preserving the value of the rand, and defending foreign exchange reserves will undermine productive economic activity. There is therefore a need for monetary and interest rate policies to be urgently refocused in a manner that promotes the primary objectives of the RDP. Restrictive monetary policies need to be reversed in order to stimulate economic activity. 2. The state must play an active role in encouraging investment to achieve the objective of employment growth. Policies should be put in place to limit the mobility of capital and reduce the volatility in the economy due to rapid short-term capital investment. Source: Social Equity, September Commission and Job Summit Document Policy Proposals 1. Interest Rates 1.1 The federation reaffirms its rejection of GEAR and government's macro-economic practises which entail: 1.1.1 High interest rates; 1.1.2 Advance a one-sided approach to cutting down inflation; 1.1.3 Advance the mythical notion that the lack of investment in South Africa is the result of non-saving. 1.2 Interest rates should be substantially reduced. This will increase the purchasing power of consumers, facilitate the shift of capital from financial markets into productive investments, and substantially reduce the burden of public debt. 1.3 Alternative ways of addressing inflation need to be pursued through NEDLAC, and at a sectoral level. Source: NUMSA and Social Equity 2. Exchange Controls 2.1 Serious consideration should be given to the impact which the removal of exchange controls has on outflows of resources abroad. 2.2 The state should retain and introduce adequate measurers to ensure that domestic assets are deployed in the national interest. Source: Social Equity 3 Regulation of Financial Sector 3.1 The financial sector should be restructured to facilitate the cheap financing of investment. The current statutory and regulatory requirements governing asset deployment of financial institutions should therefore be revisited. 3.2 The policy goal should be the deployment of assets in South Africa and not to move assets offshore. 3.3 We oppose the proposal of the Financial Services Board (in 1996) to permit movement of assets worth more than R50 billion out of the country. 3.4 The Financial Services Board needs to be restructured and its deliberations made more transparent. Labour should be fully represented on the Board. 3.5 The high costs of financial intermediation have to be reduced as they increase the cost of economic activity and impede housing development. Source: Social Equity 4. The South African Reserve Bank 4.1 The Reserve Bank's policies should encourage cheaper credit for targeted sectors. 4.2 The Reserve Bank Board must be restructured and democratised to include civil society representatives. 4.3 In addition, parliament should have an oversight over the broad objectives of the Reserve Bank policies. The legislation should further be amended to ensure that parliament is in a position to play an effective oversight role over the Reserve Banks broad policies. 4.4 The legislation and section of the constitution governing the Reserve Bank should be amended in order to put in place effective mechanisms which will see to it that the Reserve Bank acts in consultation with the Minister of Finance in determining monetary policy (including targeted inflation and interest rates). 4.5 It should be clearly stated that the purpose of such consultation and oversight role should be to ensure that the monetary policy is in line with and assists in advancing overall economic and development policy. Source: NUMSA FISCAL POLICY Vision, Alternative Framework and Policy 1. Set an appropriate deficit 1.1 The government should avoid binding itself to specified deficit targets without first assessing their impact on service delivery, on the ability of the state to extend services to communities previously denied them, and on the institutional capacity of the state. We reject the obsession around the deficit reduction. 1.2 Reducing the deficit too quickly causes deflationary pressure on the economy and slows down economic growth and job creation. Low economic growth in turn discourages investment. 1.3 The achievement and setting of deficit targets should be annually reviewed. 1.4 The need to overcome the legacy of apartheid requires the expansion of state services and their improved quality, as well as substantial state investment in people and social and productive infrastructure. In other words, state must increase its expenditure levels. 1.5 The deficit should be set within a flexible band. This flexibility is particularly important in the context of the South African economy which has not reached the GDP growth rate targets set out in GEAR. Source: September Commission, Social Equity and NUMSA 2. Increase targeted social expenditure for the poor/ Redistributive policy 2.1 Much of the existing budget expenditure should be redirected towards the required services and infrastructure. 2.2 Embark on a massive housing programme to build 300 000 houses a year, over the next three years. This is estimated to cost at least R10 billion a year. 2.3 Expand quality health care for all, including the unemployed. This should be completed by no later than the end of 1999. 3. Expand tax revenue 3.1 Demands for a reduction in corporate taxes are based on the false assumption that South African companies actually pay high rates of tax. 3.2 South Africa's tax revenue as a proportion of national income is lower than comparable countries internationally. A study of relative tax levels in 70 industrialised and developing countries suggests that South Africa's tax should be increased from 25,7% of national income to 31% - an extra R25 billion at 1996 prices. 3.3 This means that South Africa's poor are paying higher effective tax rates than other sectors of the population, and that the lower and middle income groups bear a disproportionate share of the tax burden. 3.4 The revenue target should be set within a flexible band. This flexibility is necessary in view of the fact that GEAR's growth targets have not been met. 3.5 All citizens should be registered for tax purposes. 3.6 In line with government's proposal, all SMME's which receive public contracts must be registered with the Receiver of Revenue. Source: September Commission, NUMSA and Social Equity 4. Introduce a progressive tax policy 4.1 COSATU believes that the tax system is still highly inequitable. 4.2 There is a need to reverse the declining contribution made by corporate taxes to tax revenue. 4.3 COSATU calls for a thorough ongoing review of the taxation system based on the following principles: 4.3.1 All taxes should be progressive (low for the poor, high for the rich); 4.3.2 Sufficient resources should be made available to ensure the efficient collection of taxes; 4.3.3 The system should allow for effective exemption for the unemployed as well as those receiving disability and social pensions; 4.3.4 The effective rate of corporate taxation needs to be increased through increasing the Secondary Tax on Companies and closing the loopholes in corporate tax. 4.3.5 Increase the top tax rate for those earning huge salaries. Individuals earnings above R200 000 annually should be taxed at a rate of 55%. Source: NUMSA, SACTWU and Social Equity 4.4 Scrap consumer tax on basic requirements 4.1 No VAT should be payable on all basic foods, medicines, water, domestic electricity and education. This will offer effective, easily administered relief to the unemployed and to low and middle-income earners. Source: Social Equity and SACTWU 4.5 Introduce a capital gains tax 4.5.1 A capital gains tax should be considered to deal with individuals who are able to amass a large tax-free source of wealth. Some minimum threshold should be set whereafter a capital gains tax should be applicable. Careful consideration should be given to ensuring that the capital gains tax is structured to limit opportunities for tax avoidance. Source: Social Equity 4.6. Introduce progressive taxes such as land and wealth taxes Source: Economic Policy Conference 1992 4.7 Introduce a luxury goods tax 4.7.1 A special excise tax should be introduced on luxury goods. This should exclude basic electronic and white goods (fridges, stoves, etc.). As electrification proceeds, more poor families will require such basic commodities. 4.7.2 We propose that the Department of Finance identify a list of such luxury goods, for submission to NEDLAC for comment. Source: Social Equity 4.8 Tax and Pensions/Provident Funds Option 1: Pension and provident funds should be exempted from tax at retirement; Source: Numsa Option 2: Equal tax treatment of provident and pension funds. Source: Social Equity 4.8.1 The Smith Commission's pension enhancement proposal for low income earners who participate in provident funds should be implemented so as to encourage savings and counteract the regressive effect of taxation on the earnings of the retirement industry. 4.8.2 Savings can be encouraged through a National Provident and Pension Fund. 4.8.3 At least half the seats on pension and provident fund boards should be occupied by elected worker representatives. 4.8.4 As pension and provident funds payments are understood to be employees' deferred wages, employers should not have the right of access to pension and provident fund surpluses. Legislation should be amended to give effect to this. Source: Social Equity 5. Reduce the Government Debt Burden 5.1 Internal Debt Option 1: 5.1.1 Government's debt increased from R80 billion in 1989 to R337,6 billion in March 1998 which is 55% of the GDP. Two thirds of this debt was created in the 1990's and used by the NP's cruel government to finance the end of the apartheid government including paying out golden hand shakes to its generals. 5.1.2 Out of a total of R205 billion in government spending in the 1998/9 national budget, some R43 billion will be interest payments to service the debt. This should be compared to R88 billion to be spent for all social services. 5.1.3 A staggering 95,6% of this debt is made up of internal debt with foreign debt, at 4,4%. The internal debt is made up of the following: · Public Investment Commissioners (mainly from public sector pension funds but includes parastatals) = 40,0% · Reserve Bank = 4.1% · Banks = 7.3% · Insurers = 16.3% · Private and Pension Funds = 4.2% · Others (holdings by house holds, private business, charities) = 28,1 5.1.4 The current "fully funded" pension system means that the following contributions are made to the publicsector pensision fund each year: · Government's contribution as an employer = R9 billion · Public employees contribution = R4 billion · Interest payment on pension fund debt = R18 billion · Total payment into the fund = R31 billion 5.1.5 It is estimated that pay-outs from the fund each year amount to R13 billion. This means that an additional R18 billion rands is paid into the fund as part of the "fully funded" pension system. 5.1.6 A pay-as-you-go system should be introduced in the public service pension fund, thereby freeing R150 billion in interest bearing debt. This would release roughly R18 billion a year which in turn will reduce the deficit by 76%. This additional money can be used for investment and to strengthen the government's capacity. 5.1.7 40% of government's debt of R337,6 billion consists of the public service pension fund debt, on which costly interest payments have to be made. 5.1.8 High interest rates are not only hurting smaller job-creating firms but also increase the government debt. 5.1.9 The government should look critically at the internal debt repayment in terms of the period and interest rates and re-evaluate those that were used to destroy underprivileged communities. 5.1.10 COSATU, together with the Alliance and progressive NGOs, should look at the possibility of making a call and campaign for the scrapping of the debt held by companies such as banks, in line with our call for the scrapping of the international debt. Source: September Commission and Social Equity Option 2: 1. The government is not obliged to pay the debt that was not incurred by it. COSATU should, together with other sympathetic organisations and NGO's, campaign for the scrapping of all debt incurred by the apartheid government and have this directed towards the working class and the poor. 2. To this end, COSATU should, before the end of 1998, work with NGO's and supportive organisations to develop a programme of action for the scrapping of all debt. Source: CWIU 5.2 External Debt 5.2.1 "The odious debt" (foreign debt which makes up 4.7% of the total debt) incurred by the previous government has to be reviewed. 5.2.2 The continued servicing of the national debt has socio-economic implications for South Africa, hindering its ability to address unemployment. The debt should either be scrapped or repaid on more favourable terms. 5.2.3 COSATU should actively support the international campaign against foreign debt. 5.2.4 In the short term, every one rand in five currently used to service the public debt should be allocated to RDP projects. 5.2.5 Government should investigate other sources of borrowing that would not lead to an escalation of interest rates and should also explore creating its own institutions of borrowing. Source: SADTU, CWIU, SAMWU and NUMSA 6. Budget Process 6.1 Part of the historic commitment of the liberation movement that "The people shall govern" means that parliament - as elected representatives of the people - should be empowered to play an effective oversight role with regards to the budget. 6.2 Therefore, legislation empowering parliament to amend money bills such as the budget, should grant significant powers to parliament to increase and decrease individual department's budget votes, to introduce expenditure items into the budget and to effect changes to Bill's imposing taxes, levy's and duties. 6.3 In addition to the parliament's oversight role with regard to the budget, it is important that there be broader participation in the process of drawing up the budget. Such participation could be facilitated through discussion on the proposed budget. 6.4 The Medium Term Expenditure Framework (MTEF), its parameters and its underlying economic assumptions must be negotiated in parliament and at NEDLAC some months prior to the presentation in parliament. There is no contradiction between such an increased consultative process and parliament having ultimate oversight over the entire process. Source: Resolutions Committee and parliamentary submissions 7. Campaign for these measures If no serious attempt at redressing the inequities of the fiscal policy are made, COSATU should call for a major campaign on tax with its alliance partners and civil society bodies. Source: NUMSA Nowetu Mpati COSATU Head of Communications Tel: + 27 + 11 + 339-4911 Fax: + 27 + 11 + 339-2281 E-mail: nowetu@cosatu.org.za