People's Budget Coalition Response 25 - 10 - 06

Peoples Budget Coalition Response to the 2006 Medium Term Budget Policy Statement

25 October 2006, Press release

The People's Budget Coalition welcomes the growth in government spending promised by the medium term budget policy statement (MTBPS). To address the deep-seated problems of unemployment and poverty, however, government spending could grow even faster, in particular if ASGI-SA targets are to be achieved in the medium term. Moreover, it must be directed even more rigorously to ensure employment creation and alleviate poverty.

While it is unsurprising that the Minister's statement gave particular emphasis to plans for the 2010 World Cup, it is crucial that World Cup-related projects be carefully designed to promote long-term development and social investment on a much longer horizon. The World Cup must not be an end in itself, but rather a springboard to meeting broader state objectives: achieving sustainable reductions in unemployment, poverty, and inequality; investing in basic infrastructure - such as reliable and efficient public transport - that serves the needs of all South Africans, especially the poor and the working poor.

There is a danger that, in our eagerness to host a world-class soccer tournament, we may focus all our development efforts on the cities where the matches will be held. This approach would further magnify the urban and rural divide and would increase immigration to the cities. Whilst we recognise the need to meet all the requirements of hosting the World Cup, we would also wish to see equitable and even development in other cities and in rural areas. Let 2010 serve only as the catalyst for us to implement the RDP on the scale already envisaged. After twelve years of freedom, we cannot simply tell the poor in cities not hosting World Cup matches to wait for their turn. We must attach the same urgency, zeal and vigour that we demonstrated in our World Cup bid to our broader development efforts. This must be the lasting legacy of the World Cup. This approach demands a thorough review of our fiscal and monetary policy and a sustained focus on improved spending on key education, health and social policy initiatives.

Adjustment Budget

The adjustments to the 2006/7 financial year amount to R 8,8 billion, which translates to a net increase of R 1,5 billion after taking into account declared savings and the contingency reserve.

Unfortunately the adjustment budget envisions the allocation of additional funding to the Pebble Bed Modular Reactor (PBMR). There are two concerns that the PBC would like to raise. First, that the PBMR as a venture should be financed from private venture capital sources, rather than public monies. We would, for instance, welcome government putting up capital for start-up small businesses that are labour intensive, rather than into the capital intensive PBMR. Secondly, the environmental concerns with the PBMR remain. Whilst the Environmental Impact Assessments are continuing, we remain unconvinced that the nuclear technology will have a benign impact on the environment.

Similarly, the additional investments in Denel and Alexkor, means that government supports the arms and diamond industries. The primary concern is that both these enterprises have not developed adequate business plans, to move towards profitability. The Department of Public Enterprises, we believe, should play a more significant role in turning these enterprises around. In particular, we should be looking seriously at converting Denel to peaceful pursuits. Moreover, these adjustments divert resources away from public spending in other areas.

The adjustment for Infraco is an important and significant one. The costs of broadband needs to be brought down for competitive reasons and for making internet access more affordable. However, in the context of the now privatised Telkom being unable to bring the costs of broadband access down we believe that there is a role for price regulation. The SNO might bring down costs but we remain sceptical of the benefits that will accrue from an uncoordinated and inappropriately sequenced deregulation of telecommunications.

We welcome the additional allocations to the N2 Gateway housing project, as a demonstration project for integrated housing communities in South Africa. Similarly, the integration of Metrorail into the South African Rail Commuter Corporation is an important step towards developing quality and affordable public transport.

Revenue

The People's Budget Coalition commends the Minister for his restraint in not committing to any additional tax reductions. In this context, we are pleased that the National Treasury has at last allowed the tax/GDP ratio to rise above 25%. The MTBPS envisions an average tax/GDP ratio of 27,7% over the life of the MTEF. This approaches the 29% level that the PBC has long advocated as a way of maximising the redistributive capacity of the budget without introducing substantial economic distortion.

Whilst we applaud the strongly expansionary nature of the MTEF, which envisages nominal expenditure growth of nearly R170 billion over the next three years, we also recognise that there is ample scope for even more growth. In particular, we note with concern that Treasury aims effectively to eliminate deficit spending over the next three years. The revised estimate for the 2006/07 deficits is a mere 0,4% of GDP, with a R9,3 billion surplus expected next year. Although this may appear commendably frugal, it also means that the Treasury is foregoing further opportunities to invest in social and physical infrastructure capable of propelling South Africa to even higher and more sustainable levels of growth.

The People's Budget Coalition appreciates the work being done by SARS to ensure the fair and efficient collection of revenue. We understand that revenue collection is expected to exceed targets once again this year by a very substantial margin. We hope that in future Treasury will improve its predictive models so that the budget process can benefit from a greater degree of precision.

Expenditure

While the People's Budget Coalition welcomes the increased spending over the MTEF on a number of key line items, we remain concerned about the emphasis in the Minister's speech on the 2010 World Cup event. Spending must not only be geared towards ensuring a successful event but must also be placed in the context of a medium- to long-term overarching developmental agenda.

Although we recognise the need for increased spending on infrastructure, not all infrastructure spending is equally desirable. It must also be socially useful. In this context, there must be greater emphasis on building important State Owned Enterprises, such as Transnet and Eskom and increasing public sector investment to meet the ASGI-SA targets of overall Fixed Investment achieving levels of 25-27% as a percentage of GDP.

On the other hand, the PBC welcomes the overall increase in health spending (8.3%) over the MTEF and the commitment to increase staffing levels in the health sector. This has been one of the many concerns raised by the PBC coupled with the deteriorating services of the public health system. It should further be noted that in relation to percentages of health-care workers in the public and private sectors, in South Africa 72, 6% of all doctors and 41,1% of nurses are in the private sector. This is despite the fact that 82% of the population relies on public health facilities.

The focus on increasing the allocation in spending towards retaining and growing professionals in the health, social work and teaching sector is extremely welcome. However, we should guard against increasing remuneration cost for professionals at the expense of providing adequate compensation for public sector employees in provinces.

We further welcome the increased spending to improve basic services such as water and sanitation (R1, 4bn) and the additional allocation of R400m for the eradication of the bucket system. With many municipalities facing delivery and capacity constraints, it should be important that government continue to address these challenges in order to achieve deliverable targets.

PBC applauds government's continued support for increasing the much-needed housing budget (R134m) and increased expenditure over the MTEF for public transport. It is important that this expenditure be geared to meeting local needs and not be squandered on elite projects such as the Gautrain. Such spending is critical to ensure that we eliminate the huge housing backlog, improve infrastructure investment and public transport.

The continued commitment of government to reducing crime through increasing the number of policing officials is welcomed. The PBC notes that this may however be in the context of reducing crime towards the 2010, and not part of the overall crime prevention strategy needed to reduce domestic violence and rape, decrease violent crimes and improve the overall human security in South Africa.

We welcome the increased allocations for provincial and local government. The Provincial Budget Review (PBR) announces that capital spending is the "fastest growing item in provincial expenditure". However, we are concerned by the claim that expenditure on employee compensation is set to continue in its declining cycle "to more acceptable levels". We remind the Minister that staff reductions also implies reduced service delivery. The continued underspending of R1bn in provinces is linked to the continued capacity constraints which underscore the need to increase personnel.

Budget Process

We commend the Minister for the growing transparency of the budget documentation. However, the challenge enabling greater public participation in the budget process - especially through Parliament - remains. If budgeting remains a largely technocratic exercise, there will be few opportunities for popular input into the determination of revenue patterns or spending priorities. In this context, we note with grave concern that ten years on from the adoption of South Africa's internationally admired Constitution, Parliament still does not have the power to amend money bills as required by Section 77.

We therefore welcome the Minister's acknowledgement of the importance of greater consultation on budget priorities as a key to both improved democratic participation and more effective delivery. This may be an opportune moment for the People's Budget Campaign to re-release its recommendations for reform of the budget process. We look forward to discussing these with the Minister as one of government's social partners.

Conclusion

Public representatives must take the lead by spending effectively in the fight against poverty and inequality. In times of extreme poverty, hunger and homelessness, the PBC asks our representatives to cease the convening of lavish parties and to seek other ways of rewarding hard working public employees.

Ultimately, the budget must be judged annually against our commitments in the Growth and Development Summit and the Millennium Development Goals. Sadly, the Minister has failed to provide guidance on what the impacts of the budget will be on the employment, poverty headcounts and inequality. Moreover, despite the rising levels of fixed capital formation, there are significant areas in the GDS which have not been reported upon, and have little budget support.

For more information contact:

Patrick Craven, COSATU (082 821 7456)

Rudi Dicks, COSATU (082 334 7835)

Hassen Lorgat, SANGOCO (082 411 2946)

Eddie Makue, SACC (082 853 8781)

Zanele Twala, SANGOCO (011 403 7746