Fighting for jobs

In February, COSATU hosted a meeting of 40 civil society organisations. The meeting focussed on the unemployment crisis. A steering committee representing the major groups (including Sanco, the youth, women, Sangoco, the churches and the disabled) will ensure that the conference is not a once off event and that interaction between Civil Society Organisations. COSATU sees this meeting as the start of a joint programme around jobs. All our regions will have follow-up meetings to bring civil society on board. We believe that unemployment is the most serious issue facing our country, and that all South Africans should campaign for an end to retrenchments and the creation of quality jobs. Below is the resolution adopted by the civil society conference. Resolution on job creation and job retention We the delegates to this conference who are representatives of civil society, Noting High and rising unemployment presents a national crisis that needs urgent intervention by all our people, led by our government, in search of sustainable solutions.

We the delegates to this conference who are representatives of civil society,

Close to 37 per cent of South African workers - some five to six million people - are trapped in structural unemployment. As there are close to 400,000 new entrants to the labour market every year in South Africa, the army of the unemployed will grow rapidly unless we can create more new employment opportunities. The hardest hit by unemployment remain women, young people, disabled people and the unskilled. These job losses have undermined measures to address poverty and inequality, which remain the most serious challenges facing our country. The poorest 40 per cent of our. People receive only around 15 per cent of incomes while the richest 10 per cent receive 40 per cent. Job loss and unemployment have been rising since the middle of the 1980s. In the past five years alone, hundreds of thousands of jobs have disappeared from the mines, agriculture, manufacturing and government. The hardest hit areas lie in the poorest provinces. This trend has spelt untold misery for millions of our people: the unemployed and their families. Even when the economy has grown, employers have continued to cut down on jobs. As a result, economic expansion benefits only a small minority of our people. Local business, led by Government policy, must drive employment creation - but what we have seen instead are low investments, speculative ventures and capital flight, shifts to more casual labour and sweatshops, and the demand that we accept lower labour standards in return for employment creation. Financial institutions have played a particularly dangerous role in this situation, because of conservative lending policies that slow down program that could create jobs, including low-income housing construction and the growth of small and micro. Some Government policies - especially highly restrictive fiscal and monetary policies, tariff reductions in the absence of strategies to manage the effects on local industry, and some aspects of government restructuring - have also led to job losses. Unemployment is the central factor behind poverty and the failure of efforts to achieve greater equality in our country. There is a direct relationship between unemployment and violence, crime, HIV/AIDS and other diseases. We can no longer let this trend continue unchallenged.

Believing

The only way to ensure the success of our transformation is to ensure that we address the critical question of unemployment, which threatens to tear apart the social fabric of our society

Therefore resolve

• That all of us - as individuals, organisations, labour and community leaders, captains of industry and government - must recognise the need for extraordinary steps to deal with the unemployment crisis. We shall embark on a joint programme of mass mobilisation to galvanise society to address this problem.
• To call on private capital to show its commitment and confidence to our economy and country in action by increasing the levels of investment in the productive sectors of the economy, by supporting skills development and creating more jobs and employment opportunities, especially to the benefit of women, young people, the disabled and less skilled.
• That our Government must take a more active role in job creation, both directly through state-owned enterprise and public works, and by shaping an environment that encourages employment creation by business, including the use of strong measures to guide investment and training efforts, and an open and inclusive review of fiscal. monetary, trade and industrial policies. We shall engage in an open an open and inclusive debate about appropriate measures to fight the scourge of unemployment and poverty.
• To ensure the implementation of the resolutions of the Job Summit, with the inclusion of all major stakeholders in the steering committee, and with regular public reports on progress.
• South Africa should implement a basic income grant, in order to provide a minimum income for all individuals and households and to foster more balanced economic growth and social development; taxes on the higher income group should be adjusted to meet the cost of the tax.
• Government should open space for civil society to affect the medium-term budget framework and policies, and review the funding mechanisms of the Government Employees Pension Fund to free up additional funds for economic and social services.

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Mobilise for jobs

South Africa has lost up to 500 000 jobs since 1994. The action will involve broader society. We have already met with a number of organisations who have given their full support. There are unemployed poor and employed poor people. According to 1996 census report, 26% of workers earn less than R500 a month. Workers support the unemployed. Their money is the main income in their communities.

COSATU demands that Government keeps to time frames required by the WTO on Tarriffs reduction

Given the high rate of retrenchment, all workers worry about the possibility of being unemployed. This is why our campaign is not just about job security. It is also about job creation and quality jobs.

On the 31 July 1999 COSATU served a Section 77 notice to Nedlac. The aim of the notice was to highlight our concerns around the increasing number of job losses in our country.

Our economy has been shedding jobs since 1984. Hundreds of thousands of workers have been thrown into the streets to face poverty with little prospects of finding jobs. According to the Statistics South Africa, 365 000 jobs were lost between 1996 and 1999 alone. Some believe that these figures are extremely conservative.

These job losses have continued unabated even when the economy has grown. Whilst some are celebrating another round of economic growth in 2000, many economist predict more job losses in 2000. Between 29% and 37% of workers are unemployed. Black, women and young workers are the hardest hit.

Over a period of years, the bosses have systematically replaced good, secure, decently paid jobs with temporary and sweatshop work through subcontracting and outsourcing. in this way, they undercut the higher salaries, benefits and job security we won over many years of struggle.

Taking into account that every workers supports up to ten dependants from the meagre salaries they earn, these job losses mean that thousands more have been robbed of their income or livelihood. Given the lack of a social security net in our country, workers' wages effectively form the barrier between life and death through starvation. When some in our government propose a basic income grant to address this deepening poverty, the bosses strongly oppose them and try to discredit the idea.

There is a direct relationship between joblessness, poverty, crime, violence, HIV/AIDS and other health hazards.

The best strategy is to protect existing jobs in order to fight for the creation of the jobs in the future and not the other way around. There can be no separation between the struggles of the unemployed for job creation and the employed workers for job retention.

WE DEMAND,

Amend Section 189 of the LRA to require negotiations on retrenchment

Employers should not be able to retrench workers with such ease. Amend Section 189 of the LRA to require negotiations and allow the use of the strike weapon when bosses want to retrench for narrow profit reasons. The trade unions and workers have been reduced to helpless spectators in the light of these retrenchments as the LRA only requires consultation over retrenchments. Bosses just go through the motions of consultation without seriously considering alternatives to retrenchment proposed by the unions and workers.

Change the insolvency laws to protect workers

Change the insolvency laws to force companies to disclose to their workers when they face financial difficulties that may lead to liquidation. Any application for provisional liquidation must be served upon the union and the workers. During this period all labour laws should apply to workers. This application must prove that there are no alternatives to the liquidation. If the company is indeed forced to liquidate, the workers' and employers' contributions to medical aid and retirement funds should not form part of the liquidated businesses' estate. Wages and other benefits owed should rank above all other creditors.

Only reduce tariffs as far and fast as international agreements require

Government should halt its accelerated reduction of import tariffs. In terms of international agreements (GATT or WTO) the government has to reduce import tariffs within stipulated and agreed to time periods. The government has decided to accelerate the reduction of these import tariffs despite the fact that South Africa is not obliged to do so. The effect of this upon certain industries, like the clothing and textile industry, is that job losses are increased and accelerated. Government should adhere to the time periods that South Africa is obliged to keep by virtue of its international commitments. It should institute policies that compel employers to meet South Africa's obligations without unnecessarily increasing and accelerating job losses.

End corruption at border posts

There is a lot of corruption at our border posts and harbours, allowing goods to enter the country illegally. This not only robs the government of the income from the tariffs, but adds to the destruction of our industries. There should be more effective monitoring of the borders to prevent goods from entering South Africa illegally and threatening our jobs.

Honour the National Framework Agreement

In the public sector, we remain opposed to unilateral restructuring, including privatisation, that will result in job losses and an increase in the cost of service delivery. international experience has shown that privatisation of basic services has always resulted in an increase in cost to the poor. We believe service delivery should remain in the hands of the state. Moreover, we will oppose any restructuring of government departments which results in workers losing employment. Government must remain committed to the spirit and practice of the National Framework Agreement. There should be no unilateral restructuring and all local government development programmes should take place within the ambit of negotiating with the unions concerned.

Basic Income Grant

The army of unemployed numbers 4.5 million, with increases every day. Unemployment is a major cause of poverty, and the only long-term way out of poverty is to create jobs. Still, to help immediately to alleviate poverty and to stimulate broad-based development, COSATU supports the call for a basic income grant to ensure all individuals receive a minimum of subsistence.

COSATU remains committed to reaching a negotiated solution on the above demands. However, we cannot afford a situation where job losses continue while negotiations are drawn out over months. The onus is on business and government to respond positively and urgently to our demands. This deadlock requires business, in particular, as well as government to review their current mandates and to initiate negotiations once they have new mandates.

We will continue our programme of action, with protests in all of our provinces and sectors. it will culminate in national mass action on May 10, unless our demands are agreed to, we stop the job losses and create new, quality jobs.

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The 2000/01 Budget in Perspective

1. Introduction

The budget is an important instrument of fiscal policy – it indicates government’s spending priorities and how it will raise revenue to finance its expenditure. An important yardstick to measure the budget is the extent to which it addresses South Africa’s most pressing problems of inequality and unemployment. The 2000/01 budget was introduced amid general enthusiasms on growth prospects for the economy. GDP growth is expected to reach 3.5% in government and business circles. On the other hand, it was introduced in the context of worsening unemployment and inequality.

The government budget does not sufficiently address inequality and unemployment

While the 2000/01 budget contains both positive and negative elements, on balance it does not suffice to launch South Africa on a new growth path by defining a broad development programme that effectively and extensively address South Africa’s most pressing economic problems: unemployment and inequality.

 

2. The Economic Framework

The budget is predicated on a conservative macroeconomic framework. It envisages further tightening of GEAR targets such as deficit: GDP and revenue: GDP ratios. The deficit: GDP ratio is projected at 2.5% in 2000/01 and will be slashed to 2.2% by 2002/03; while the revenue: GDP ratio is projected to fall to 23.8% in 2000/01 from the 1999/00 estimate of 24.2%. Further tightening of GEAR’s deficit targets ignores the cost imposed on society by deficit-reduction and suggests lack of adaptability. Deficit reduction has in real terms led to stagnation in spending on social services and major cuts in infrastructure budgets.

In addition, to a conservative fiscal policy, large scale restructuring of parastatals is also envisaged. The restructuring of the big four, namely ESKOM, Telkom, Denel and Transnet will be prioritised. The restructuring proposals include partial privatisation; full privatisation; strategic management partnerships and public private partnerships. Local government services will also be restructured but no details were provided in the budget. The unprecedented restructuring plans if implemented will result in major downscaling of state’s role in the economy. Such an approach ignores the dynamic role played by the state in many societies including in the reconstruction of post-war Europe.

Government intends to continue with exchange control liberalisation. The relaxation of foreign exchange controls led to a dramatic increase of foreign portfolio holdings by South African institutions, increasing to about R60 billion since 1994. Foreign exchange liberalisation was accompanied by the relocation of primary listing to either the London or New York Stock Exchange by South African corporations such as Anglo-American. Further relaxation of exchange controls is tantamount to encouraging capital flight by South African companies and will denude the country of much needed resources for productive investment. On the other hand, since 1994, the net capital inflow has tended to decline with the steady increase in capital outflow.

South Africa needs productive investment by both domestic and foreign investors if sustainable growth rates are to be realised and the unemployment problem addressed. Current strategies encourage the outward flow of South African capital and have served mainly to attract the volatile portfolio investments. Overall, the budget contains very little assessment or coherent strategies to counter the ‘strike’ by domestic investors.

As part of its broad economic policy, government has formally introduced inflation targeting within a 3-6% band to be realised in three years. A new index of consumer prices – CPIX (consumer inflation minus interest rate costs) has been introduced. In principle, COSATU is not opposed to targeting of economic variables such as growth, employment, and investment but has reservations about the mooted inflation targeting. COSATU proposed eight conditions to ensure that inflation targeting plays a developmental role including the fact that targets must never be so low that measures to achieve them will compromise growth, employment, small and medium enterprises, or development in general.

Real and nominal change in expenditure, 1999 to 2000
	1999/00 (R millions)	2000/01 (R millions)	nominal change	real change @ 7.7% CPIX	real change @ 6.6% CPIX
Other economic services (mostly labour and tourism)	3,401	5,104	50%	42%	43%
Defense	10,742	13,737	28%	20%	21%
General government	24,887	28,081	13%	5%	6%
Prisons	4,259	4,740	11%	4%	5%
Justice	2,694	2,981	11%	3%	4%
Health	29,928	32,320	8%	0%	1%
Agriculture	3,516	3,785	8%	0%	1%
Welfare	19,674	20,923	6%	-1%	0%
Education	47,841	50,712	6%	-2%	-1%
Police	14,826	15,646	6%	-2%	-1%
Interest	44,483	46,490	5%	-3%	-2%
Mining manufacturing construction	224	226	1%	-7%	-6%
Water	2,338	2,321	-1%	-8%	-7%
Transport communication	9,168	8,815	-4%	-12%	-10%
Other social services	810	772	-5%	-12%	-11%
Housing	4,381	4,075	-7%	-15%	-14%
Fuel/energy	393	351	-11%	-18%	-17%
Reserve		2,269	n.a.	n.a.	n.a.
Total	223,564	243,425	9%	1%	2%
Growth without defense	212,822	229,688	8%	0%	1%
Growth without defense and reserve	212,822	227,419	7%	-1%	0%

Note: The latest available CPIX figures show a rate of 7.7%, while the Department of Finance projects a rate of 6.6% for the 2000/01 fiscal year.

3. Real Trends in Spending

Analysis of real trends in spending point to the fact that total spending outside of defense and reserves grew strongly between 1994 and 1996, and then fell sharply after the adoption of the GEAR. As the following table shows, this year spending increased substantially for:

• Defense,
• Labour (essentially due to the implementation of the skills development levy rather a new fiscal allocation),
• General government, which includes the Departments of Finance, Home Affairs, Public Service and Administration and similar administrative functions, and
• A reserve for unforeseen contingencies.

If we subtract spending on the reserve and defense, total spending declined slightly in real terms. In other words, except for the skills development levy, which is obviously welcome, the increase in spending was not concentrated on developmental or service areas.

In this past year, the social services as a whole remained unchanged or shrank slightly, while most infrastructure and economic functions declined dramatically in real terms.The main justification for the rapid fall in infrastructure is that provinces and local governments should shift to private-public partnerships. In other words, the budget cuts are designed to compel partial or full privatisation or outsourcing of infrastructure provision. The Department of Finance is even setting up a special unit to drive this process. Yet experience indicates that private-public partnerships require considerable capacity inside and outside government; take a reasonably long period – at least a year – to structure properly; and generally do not serve poor communities well.

This year’s budget continues a trend since 1996 of annual declines in spending on social services and infrastructure. Given population growth of just over 2 per cent a year, the result has been a decrease of over 10 per cent in spending per person between 1996-2000.

Note: Deflated using CPI for the middle income group, since CPIX not available for past years.

Cuts in expenditure are severe in per capita terms since the population increase far outstrips the allocated spending. According to figures from Statistics S.A the population growth rate is 2.2% between 1996-2001. This means, for instance, that there is a worsening mismatch between the resources available for health care services and the number of people that need health care. The real decline in expenditure aggravates the inherited social deficit. It is spurious to argue that there is no capacity to spend more effectively, when cutbacks take place in areas such as pensions purely on the basis of the argument of insufficient funds.

In sum, the GEAR policies that underlie the new budget have indeed had the effect of cutting into spending on services. In these circumstances, given population growth, the shift in spending toward historically underserved communities has been largely offset by the decline in spending overall. This situation combined with rising unemployment has undermined efforts to alleviate poverty.

4. Analysis of Revenue

The 2000/01 budget contains a wide range of tax proposals, both negative and positive. COSATU welcomes the introduction of the capital gains tax. COSATU has called over a long period for the introduction of a capital gains tax to deal with individuals who are able to amass a large tax-free source of wealth. This measure will assist in raising revenue and discouraging speculation. It is also important to limit the scope for tax avoidance.

Unfortunately, the personal income tax relief benefits the rich more than the poor.

Tax relief for individuals younger than 65 years
Taxable Income R000	1999 Rates (R)	2000 Rates (R)	Tax Reduction as % of income	Tax reduction
19	0	0	0	0
20	90	0	90	0.45
25	1 040	700	340	1.36
30	1 990	1 600	390	1.30
40	4 660	3 800	860	2.15
50	7 660	6 700	960	1.92
60	11 160	9 900	1 260	2.10
70	15 160	13 600	1 560	2.23
80	19 560	17 600	1 960	2.45
90	23 960	21 600	2 360	2.62
100	28 380	25 600	2 760	2.76
120	37 160	33 600	3 560	2.97
150	50 660	45 600	5 060	3.37
200	73 160	65 600	7 560	3.78
300	118 160	107 600	10 560	3.52
400	163 160	149 600	13 560	3.39
500	208 160	191 600	16 560	3.31

Source: Department of Finance

Two concerns arise from the personal tax breaks. First, using R9,9 billion for personal tax relief rather than for social expenditure as well as investment has high opportunity costs for the country. Second, reducing the marginal tax rate for high-income earners from 45 to 42% on income in excess of R200 000 reduces the progressivity of income tax. Rather than decrease the marginal tax rate COSATU proposes the introduction of a 55% marginal tax on very high-income earners to mobilise more revenue and increase the progressivity of the tax system.

The following data from a sample of developed and developing countries indicates that South Africa’s top rate of 45% was not high by international standards:

Top marginal income tax rate
Australia	47%
Belgium	55%
Cameroon	66%
Chile	45%
China	60%
Congo	50%
Denmark	59%
France	54%
Germany	53%
Netherlands	60%
South Africa	45 (reduced to 45%)

Source: South African Revenue Service

Despite the tax breaks, individuals on aggregate still carry a disproportionate tax burden relative to companies. As indicated in the table below, while the tax breaks mildly reduce the burden on individuals, this takes us back to the situation pertaining in 95/96 fiscal year. The share of total tax revenue contributed by individuals has increased, from 30% to 43% in 1999/00. The share of taxes on companies has fallen from about 17% in the 1980s to around 10% in the 1990s. The share of taxes contributed by the gold mining industry has fallen considerably from the peak of 9% in 1983/84 to a low of 0.1% in 1999/00. Consumption taxes contributed slightly more in the 1990s than in the 1980s. The contribution of excise duties, comprising specific and ad valorem excise duties, is estimated to decline in 1999/00 to about half of the 1983/84 level.

The gap between individual and corporate tax needs to be closed not more or less maintained. Linked to this is the need for `an assessment of the effectiveness of the unconditional tax breaks granted to companies. The enquiry should test whether such tax breaks have the desired results in terms of increased investments.

The shifting composition of tax revenue 1976 - 99
	1976	1980	1985	1990	1995	1999
Gold Mines	9%	11%	7%	2%	*	*
Other Companies	27%	18%	16%	18%	12%	11%
Individual	25%	18%	31%	30%	41%	42%
Sales Tax	*	12%	25%	27%	27%	24%
Customs & Excise	21%	13%	8%	14%	18%	8%
Other	19%	28%	13%	9%	2%	15%
Total	100%	100%	100%	100%	100%	100%

* under 0,5 per cent Source: The First Women's Budget; 1999 Budget Review

In addition to scoring gains from the personal tax breaks, high income earners will further benefit from the mooted increase in the interest exemption to R3000 a year for tax payers under 65 and to R4000 a year for taxpayers age 65 and over. To earn that kind of interest, taxpayers would have to have invested funds of around R15 000.

The budget emphasises closing tax loopholes. This commitment will help ensure tax morality and in dealing with the perennial problem of tax evasion by business and individuals. The increased efficiency of tax collection, the efforts to bring businesses and individuals into the tax system, and the tougher stance on tax evasion are all encouraging signs that the SARS is committed to ensure that all who are supposed to pay taxes are indeed contributing to the public revenues and not free-riding on the compliance of others.

The fact that the Minister did not give in to pressure to increase VAT, while welcome, is not in itself sufficient. VAT is a regressive tax that affects lower income earners more severely: they pay a higher share of their income in tax than the rich. According to the 1999 Budget Review, the poorest fifth of the population spend 61% of their consumption expenditure on goods subject to VAT, while the wealthiest fifth spend only 43% of their consumption expenditure on these types of goods.

COSATU calls for a multiple or staggered VAT rating, including zero-rating additional items that meet basic needs and a higher rate on luxury goods to raise compensating revenue.

Overall, government expects a tax:GDP ratio of 24.7% in 2000/01, declining to 23,9% in 2002/03. The projected revenue:GDP ratio is well below GEAR target of 25% revenue:GDP ratio. South Africa’s revenue:GDP ratio is very low as compared to developed countries and low to moderate as compared to developing countries. Tax effort analysis suggests that South Africa could mobilise an additional R25 billion per annum without undermining international competitiveness.

Against this background, the mooted further reduction in tax:GDP ratio is cause for concern. It ignores the fact that South Africa is under-taxed compared to other societies. It also fails to recognise the potential for further revenue that can be mobilised by implementing tax reforms along the lines proposed by COSATU. The combination of deficit reduction and the envisaged tax:GDP ratio declines will have a further knock-on effect on expenditure if the expected economic growth rates do not materialise.

5. Budget Reform

The reform of the budget process is important to ensure maximum participation of parliament and civil society, including trade unions. To date parliament does not have the power to amend money bill including parliament despite the constitutional provision in section 77(2) which calls for legislation to grant parliament the necessary powers to amend money bills such as the budget. It is for this reason that we withdrew from the parliamentary budget hearings since parliament cannot change anything in the budget. It can either reject or adopt the budget in toto. Legislation was introduced in 1997 but was rejected as inadequate and restrictive. The Department of Finance has also promised a budget reform white Paper to no avail.

COSATU’s substantive response to the budget is on our website: www.cosatu.org.za

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