The 1999/2000 Budget
by Kenneth Creamer, researcher, COSATU Parliamentary Office
A
number of important developments impacted on |
Firstly, some progress was made in last year’s Presidential Job Summit towards greater consensus – between government, labour, business and community representatives – on how macro-economic policies need to be tailored towards promoting job creation and development.
Secondly, the Job Summit recognised the necessity for adjustment as a result of the fact that GEAR projections had not been met. The Minister of Finance, Trevor Manuel, then set in motion a process of adjusting the most constraining aspects of the GEAR framework.
This means that a higher proportion of resources is available in this year’s budget than if government had simply decided to stick to the original GEAR targets.
Thirdly, through Alliance processes, and as the General Election approaches, increasing dialogue has enabled the Alliance partners to frankly assess the successes and failures of the first five years of democratic governance.
The economic context of this year’s budget, includes increased financial and currency volatility which has impacted heavily on developing countries. Minister Manuel is correct to draw South Africa’s attention to the devastating social consequences of this financial crisis. COSATU strongly supports government’s commitment to ‘improved financial regulation domestically and internationally and to increased conformity with international standards (both in emerging markets and in the major industrial economies).
At the domestic level, the recent negative trends in the South African economy are serious cause for concern amongst workers and their families. GDP growth has been virtually stagnant and negative employment trends are deeply disturbing. An unemployment level of nearly 30% (according to the CSS’s official definition) is dangerously high.
The critical factor holding back growth and job creation is the ongoing ‘investment strike’ by the private sector.
According to Reserve Bank figures, private sector investment increased by 6% in 1996, and by 3% in 1997. It declined further to only 2,5% in the first half of 1998. The lack of private sector investment is the greatest threat to the long-term stability of our economy.
A radical review of South Africa’s investment promotion policy needs to be undertaken: including policies regarding the re-imposition of prescribed assets investments, an expanded role for state intervention and ownership, and stricter exchange control regulation.
The lowering of interest rates is important, as it will promote investment and ease the burden on working families paying off bonds or loans. Priority should be given to lowering interest rates and the promotion of a monetary policy which will help to create jobs.
Expenditure
There appear to be limited changes in expenditure patterns in this year’s budget as compared to previous years. We welcome the Minister’s commitment to maintaining levels of social services. However, we believe this will be difficult to achieve given the resources allocated.
The increasing share of expenditure consumed by interest payments highlights the devastating impact of high interest rates on our economy. This year these payments have squeezed out an increase in social expenditure, and despite the government’s attempts to prioritise this, social expenditure has fallen slightly in real terms.
The amount of money allocated for social services has fallen in real terms (that is, after inflation is taken into account). The chart below shows the percentage decline or increase in social spending after inflation (taken at 7,6% for this year) is taken into account. Real expenditure will drop in all areas except housing and community development:
It is encouraging that there is a projection of real growth in social spending over the next two budgetary years. We hope that at least the projected increases will materialise.
It is crucial that the government spend money on developing productive infrastructure. This is important for industrial development, job creation, and the meeting of basic needs. Whilst mechanisms to harness private capital need to be explored, our view remains that private-public partnerships should supplement rather than replace public investment.
We were heartened by the references in the Minister’s speech to the poor and to women. In assessing the success of the Budget, we need to study the impact it will have on these groups.
A critical point of concern is that government will continue emphasizing the need for public service cuts. This approach however, ignores the need for a clear assessment of the personnel required to ensure adequate service delivery levels, (in line with the recent agreements in the Bargaining Council and the Job Summit).
We welcome the commitment to the task team set up at the job summit around the restructuring of the Government Employees’ Pension Fund and remain committed to using that process to advance our view that an effective restructuring of the fund can release significant resources for development.
Taxation
COSATU welcomes a number of positive steps in the 1999/00 budget:
We are, however, disappointed with the tax relief provided for companies and rich individuals as the burden may again shift towards the poor and working families. In the light of the ‘investment strike’ by the private sector, there is a need for a thorough analysis as to whether the tax breaks to business translate into more investment and job creation, or create an environment for more profiteering subsidized by public resources. Tax concessions to the corporate sector must be matched by a commitment to reinvest profits in areas such as education and training; research and development; and job creating productive investment.
We need a holistic and thorough review of the tax system to introduce greater progressivity through, for example, zero-rating VAT on basic food stuffs, higher marginal rates for the highest paid, etc.
The Budget process
We would like to commend government on the great strides that have been made in transforming the budget process with the objective of making it more transparent and accountable. However we are disappointed that legislation empowering Parliament to amend money Bills has not been introduced. This means that Parliament can merely debate the Budget, and not make any changes to it.
Anna Weekes of SAMWU points to the dangers of privatisation for South African workers.
Towards the end of last year, the Prime Minister of Pakistan, Nawaz Sharif, issued a Presidential Decree suspending trade union activities in the Water and Power Development Authority (WAPDA).
The Pakistan WAPDA Hydro Electric Central Labour Union has been denied the right to operate or bargain on behalf of its members. The decree has also been used to forcibly retire WAPDA workers without any explanation. Workers have been replaced by about 35 000 junior officers and around 250 officers of the Pakistan Army in eight electricity companies. The newly appointed WAPDA chairmen is LT- General Zulfiqar Ali Khan, brother of a federal government minister. In effect, the public provider has been turned into a private company!
The government claimed that workers were stealing 26% of the electricity and that WAPDA was making heavy losses. But the real reason for the losses is that WAPDA was forced to buy power from private power stations set up by the previous government.
Corruption
These private power stations have a history of corruption. The biggest, Hubco, is owned by a UK based company, National Power. The government started prosecuting Hubco for corruption in September 1998, after the chief executive fled to England to escape charges. The World Bank heard about this, and refused aid to Pakistan until the charges were lifted.
In December, the Pakistan government agreed to drop the charges against Hubco. Instead, it attacked the trade unionists at WAPDA. One week later, the World Bank gave its consent to the IMF package.
In February, a special military court was set up to try any worker alleged to be stealing electricity. Earlier in the month, riot police broke water cannon to break up an anti-government rally of thousands of people near the parliament building in Islamabad. On 14 February, the Supreme Court ruled that special military courts are unconstitutional. Human rights groups and the opposition in Pakistan have welcomed the ruling.
Lessons
South African workers can learn some lessons from these events in Pakistan. The first is that the long held suspicion that multinational private providers are riddled with corruption is true. The second is that when public providers are sliced up into several different companies - like the government is proposing with Eskom - the service rapidly becomes more expensive and less accountable to the public.
Senegal
In Senegal, in West Africa, twenty six trade unionists from the electricity union, SUTELEC, were arrested in July last year for campaigning against the privatisation of the state electricity company, SENELEC. They were charged with sabotaging the country?s main power plant, but were all found not guilty in December. Two leaders, Mademba Sock and Samba Yero Sylls Dieye, remained in jail until the end of January, after being convicted of creating a public disturbance.
The IMF had said that SENELEC should be privatised. Yet, in 1997, the company made a profit of over R50-million! When the SUTELEC leaders were released, police teargassed supporters who had turned out to accompany them from Dakar’s central prison to the union headquarters. Eleven people were arrested. Mademba Sock has since said that he believes "the trial is a conspiracy against SUTELEC".
Eskom gets involved
Eskom is part of a consortium, with American Cinergy, bidding for this privatisation contract in Senegal.
South African workers must put pressure on Eskom to remove itself from this controversial contract. It is unacceptable that a South African public electricity provider gets involved in privatisation deals overseas that are clearly in conflict with the most basic of worker rights. As workers of the world, we need to unite to ensure that both private companies and public providers based in our own country do not turn a blind eye to the rest of Africa becoming a giant bloodbath in pursuit of their own interests.
With thanks to Dave Hall of the Public Service International (PSI) for information.
Biwater lacks credibility Biwater, the company which wants to privatise Nelspruit’s water, but is struggling to find the funds and the credibility to do so, thinks it has found another customer. This time it is the state of Karnataka, in India, which has chosen Biwater for a bulk water supply project in its capital city, Bangalore. But the project is being delayed for two reasons, which are becoming very familiar all around the world. Firstly, there is a strong local campaign against the privatisation. Secondly, Biwater have not actually got the money they promised to invest - they are hoping to borrow it in the next few months - from Indian banks! Once again, the multinationals’ promise to bring inward investment turns out to be the opposite of the truth - they want to use the savings of local people, and then take profits out of the country. |
