Volume 10, No.3 - May 2001

A victory for all the people

The people's budget

By COSATU Parliamentary Office,

This article deals with three areas in relation to the budget: a summary of our direct response to the Government 2001/02 budget; a report on the People's Budget; and developments in relation to budget reform.

2001/02 Budget While the government budget was slightly expansionary and started to reverse some of the expenditure cuts of previous GEAR budgets, it fell far short of the decisive intervention needed to put South Africa firmly on a developmental, job-creating growth path.

Total expenditure is expected to rise about 4% in real terms this year. Given population growth, this means an increase of close to 2% per person, which is positive. The very rapid increase in economic services and justice is welcome. So is the 5% real increase in education, which is enough to return expenditure per learner to levels last seen in 1999. The real decline in spending on housing and community services and on welfare is a matter of concern, however.

The real fall in welfare spending this year points to the need to do more than stabilise old-age pensions, which the present budget provides. The old-age pension has dropped about 20% since 1994, and should be increased substantially in real terms. A further concern is the effective 40% cut in the budget for electrification.

The overall revenue:GDP ratio (meaning the amount of taxation as a percentage of the country's national economic product) is projected to fall to 23.6% for the years 2001/02 to 2003/04.

This ratio is low by international standards, and constrains the resources available for spending. It is problematic that the capital gains tax will be delayed until October 1, six months later than originally planned, which will give companies and taxpayers more time to find ways to minimise their payments.

While the intention to provide tax relief for lower to middle income earners is positive, we are concerned that the lower income brackets will not be the greatest beneficiaries of the cuts. Nominal savings to taxpayers increase as the income level increases.

The maximum benefits are to income earners in the range of R80 000 to R100 000 rather than the lower income brackets, and therefore the tax relief is not sufficiently progressive.

On the face of it the proposal for a wage incentive could be modestly helpful in encouraging employment creation, but we require much more detail on the proposal in order to assess it. The incentive would need to be carefully designed and implemented to ensure that it results in net new job creation, rather than just a windfall gain for employers.

The proposed amount - R600 million - is anyway too small to make a major difference to the unemployment crisis. Reducing the cost of labour alone will not overcome the structural inequalities and tendency toward capital intensity in the South African economy.

COSATU has for some time put forward proposals for the zero-rating of paraffin and other goods which are disproportionately consumed by the poor, to minimise the regressive nature of VAT, and strongly welcomes the zero-rating of paraffin. On the other hand we are concerned about the reduction on ad valorem tax on a range of luxury goods which are predominantly consumed by the wealthy.

The Budget Review reiterates Government's proposals for privatising aspects of the main state-owned enterprises - Eskom, Telkom, Transnet and Denel - as well as reiterating the Treasury's determination to push public-private partnerships at all costs.

The Budget Review shows that in the past three years, almost two thirds of the returns from privatisation have been used for debt reduction. If state-owned enterprises must compete with private providers, they will be put under pressure to follow a similar policy to maximise their returns.

The result will be a reduction in efforts to provide basic services for the poor, while private and state-owned companies concentrate on improving services for business and the rich. Further, the budget does not provide adequate resources to deliver free basic services to all, despite government's commitments.

Ostensibly in order to promote "the global expansion of South African firms", the limit on the use of South African funds for new approved foreign direct investment has increased tenfold from R50 million to R500 million. The opportunity cost of R500 million being invested overseas is jobs that could otherwise have been created for South Africans, or which may well be lost as a result of this change.

The People's Budget

Last year COSATU, together with the South African Council of Churches (SACC) and the South African NGO Coalition (SANGOCO), launched the People's Budget. It was deliberately constituted in this way to represent trade unions, NGOs, and progressive churches.

The People's Budget is an attempt to put on the table progressive, developmental, and sustainable alternatives to the government budget. After releasing initial proposals towards the end of last year, the People's Budget released more detailed proposals in advance of the presentation of the government budget.

We also responded jointly to the government budget itself, focusing on where it falls short of what is needed in comparison to the benchmarks set out in the People's Budget. Copies of the People's Budget can be obtained from COSATU Head Office.

The People's Budget is an ongoing process, and during the year we will be continuing the provincial hearings which have already started. The emphasis in the next few months will be on education work and grassroots mobilization. To this end we will be producing a basic training manual on fiscal policy, budget processes and the social wage. The coalition between the three organisations needs to also function at a provincial level, and our response to the next budget will include a provincial dimension.

The People's Budget has entered an engagement with relevant ANC study groups in Parliament and other structures of governance. We will continue to brief them on our proposals and attempt to influence broader policy debates around appropriate fiscal policy.

Budget reform

The Constitution (at s77) requires the enactment of legislation which will empower parliament to amend money bills, in particular the budget, instead of the current system which limits parliament to accepting or rejecting them.

The ANC Elections Manifesto also contained a commitment to ensure that elected representatives in national, provincial and local spheres have the appropriate powers to shape budgets.

Despite this, no such legislation has yet been passed, making parliament's engagement with the budget futile. It is for this reason that for the past four years COSATU has not made presentations to parliament on the budget, although we have released detailed responses every year.

COSATU wrote a comprehensive letter to the Finance Portfolio Committee raising our concerns with the budget process. This intervention, which was highly profiled, resulted in the Committee formally approaching the Speaker of Parliament for guidance on how to take the issue forward, given MPs' own frustrations with their inability to meaningfully impact on the budget. In his closing address on the budget debate, Minister Manuel indicated that they hope to table legislation on budget reform this year.

We are currently seeking legal advice about options open to ensure that provisions of the Constitution are accepted, including the possibility of a Constitutional Court challenge. Over and above the legislative challenges of democratising the budget process, there is a need for increased participation - of parliament, Nedlac, and society at large - to be involved in the budgetary process and we will continue to exert pressure in this regard.

COSATU is also playing a leading role in a grouping of civil society organisations which are pushing for reform of budget processes and legislation.