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Press statement issued by the Congress of South African Trade Unions.

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Budget Preview by the People’s Budget Campaign
The People’s Budget Campaign, formed by COSATU, the
SACC and SANGOCO, expect the 2002/3 budget to
express a renewed commitment to social solidarity. Above
all, it should initiate decisive measures to alleviate poverty
and restructure the economy to create jobs and ensure
rapid growth.
· Fiscal strategy
The People’s Budget argues that an effective fiscal policy
must arise out of a robust development strategy that can
overcome the legacy of apartheid. Only transformation of
the economy and society can provide the basis for long-
term growth and employment creation. The development
strategy at the heart of the RDP seeks to integrate
· Social protection programmes, which address poverty
directly by providing basic infrastructure and social
services as well as welfare grants, and
· Measures to restructure the economy in ways that will
give the poor access to jobs and productive assets,
including an industrial strategy geared to employment
creation, skills development, and support for SMMEs
and land reform.
This approach requires a strong state, with sufficient
resources. The budget cuts in the late 1990s worked in the
opposite direction. Treasury itself now admits that provincial
budgets fell by 1,8 per cent a year, on average, in the three
years to 2000. Government’s commitment, in the 2001
Medium Term Budget Policy Statement (MTBPS), to
growing the budget in real terms is welcome, but does not
go far enough. It means we will reach 1996 levels of
government spending per person only around 2005.
Treasury sometimes cites rollovers as a reason not to
increase spending dramatically. But rollovers are heavily
concentrated in a few provinces and departments, while
other departments are underfunded. In 1999/2000, just four
national departments accounted for 80 per cent of rollovers
by national government; in 2000/1, Gauteng alone
accounted for half of provincial underspending on education,
health and welfare.
The People’s Budget has modelled the impact of more rapid
expansion in borrowing and taxation, with the deficit rising to
around 4 per cent of GDP and taxes to between 26 and 27
per cent. If the funds are used productively for social
protection and economic restructuring, the result is
economic growth of close to 5 per cent, and a gradual
decline in deficit and tax ratios.
· Taxes
The People’s Budget welcomes the President’s
commitment to cut taxes on the poor. But only about 20 per
cent of the population earns enough to pay income tax, so
continually focusing on that tax will never reach the poorest
of the poor. Indeed, to the extent that tax cuts limit the
expansion in government services, the majority of our
people will suffer as a result. For this reason, the People’s
Budget calls for higher income tax rates for the high-income
group.
If government wants to cut taxes for the poor, the best
method is to introduce multiple rates for the VAT. Currently,
the VAT takes a higher percentage of income from the poor
than the rich. The People’s Budget calls for reversal of this
situation, with higher VAT on luxuries and an expansion in
zero-rating on basic necessities. That is the system most
countries have adopted worldwide.
· Food security
The last few months have seen an extraordinary increase in
food prices, including a 30 per cent rise in the cost of
maize. We expect this year’s budget to include practical
measures that will address the resulting hunger. Already up
to a quarter of South African children under six are stunted
for lack of food. Failure to take rapid action will lead to even
worse outcomes.
Recent research shows that this year’s rise in maize prices
was based in large part on inaccurate predictions of a
domestic maize shortage, combined with import-parity
pricing in a context of rapid depreciation. In other words, it is
not driven by normal production factors, but rather by poorly
functioning markets.
The People’s Budget has long called for improvements in
the child and old-age grants and the introduction of a Basic
Income Grant as essential for long-term food security for
our people. This should be reflected in the budget by:
· Increases in the child support grant and old-age
pension of at least 10 per cent above inflation. This will
make up for some of the real cuts in the old-age
pension in the 1990s.
· Provision of sufficient funding to reach all eligible
people. We welcome the President’s call to make sure
that all needy children get the child support grant. To
achieve this end, Home Affairs must expedite
applications for identification, and the means test for the
grant must be eliminated. Given the low level of the
grant, it is unlikely that the well off will take the trouble to
apply for it.
· The allocation of funding to set up structures to
administer the Basic Income Grant and, in the MTEF, to
phase the grant in over the next two years.
In addition, we need short-term measures to address the
new food crisis. Important steps include:
· Restoration and a substantial expansion of school
feeding schemes, and their extension to other vulnerable
groups, including the aged, homeless and rural
underemployed.
· A commitment to ensure that the VAT zero rating of
basic foods is passed on to consumers. Thus, brown
bread is zero rated while white bread is not – but in most
shops, there is no difference in price. That means
storeowners are profiteering at the cost of the poor.
· The use of supply-side measures to encourage
increased maize production in South Africa and if
possible in neighbouring countries, in order to reduce
the foreign exchange risk in future.
· Investigation of the maize market, in particular the crop
assessments committee and the futures market.
· Health
Health remains the most underfunded of the major social
services. Yet the sector faces the challenge of the AIDS
epidemic. Meanwhile, some two thirds of health resources
are in the private sector, serving only about a fifth of South
Africans. This situation is slowly recreating inequalities like
those found under apartheid, but now based on income
rather than race.
To remedy this situation, the People’s Budget calls for
· A National Health Insurance system that can integrate
the public and private sectors and ensure adequate
health care for all South Africans. While the new system
would not increase the overall cost of health, it would
require substantial shifts in funding procedures, which
should be reflected in the MTEF.
· A more vigorous campaign to stop the AIDS epidemic,
including more focused and open education and media
campaigns; an extension of testing and counselling
services, as well as community-service schemes for
home-based care; and provision of anti-retrovirals in the
public health sector. We recognise that these
programmes will be costly. But the costs are far
outweighed by the savings in terms of human lives,
substantially reduced numbers of AIDS orphans and the
maintenance of decent, productive lives for HIV positive
people. Moreover, compulsory licensing of local
production should substantially reduce medication costs.
· Education
The MTEF provides for a substantial improvement in
education funding, and we expect that commitment to be
met. In addition, we expect more rigorous measures to
ensure equality between schools, in terms of support staff –
cleaners, security and clerical workers – as well as facilities
and overall expenditure.
In this context, the current fees system maintains the
massive inequalities inherited from apartheid. The budget
should include a commitment to investigate ways to modify
the fees system so that it benefits all learners, and not just
those in rich suburbs.
· Infrastructure and housing
The People’s Budget welcomes the significant increase in
government investment promised by the MTEF, after years
of cuts. But the delivery mechanisms must be reviewed. In
particular:
· The commitment to free basic services is a critical step
toward ensuring real access to infrastructure. But the
definition of basic services must be broadened and the
subsidies enlarged in order to provide adequate social
protection. Moreover, the share of the budget going to
local government, especially in the impoverished former
homeland areas, must be increased to make this
scheme viable.
· Treasury has been in the forefront of pushing for private-
sector provision of basic services, essentially to
compensate for persistent budget cuts since 1996. That
strategy ignores the fact that the private sector won’t
serve the poor, who cannot pay. As a result, the
introduction of private providers won’t make up for
budget shortcomings. Instead, government must ensure
adequate funding. It must also explore more people-
centred forms of delivery, including the public sector
itself, community control boards, co-ops and well-
defined, competent regulatory frameworks.
To support accountability, the People’s Budget calls for the
inclusion in the MTEF of clear targets and deadlines for
universal access for each type of basic infrastructure.
These targets must ensure affordability for poor
households, not just access in technical terms.
· Employment creation
The key to employment creation is restructuring the
economy to expand the relatively labour-intensive sectors,
combined with substantial improvements in education and
training and support for co-ops and SMMEs. From this
standpoint, the proposed wage subsidy – although a
welcome gesture to prioritise the unemployment problem -
is too small and poorly targeted to have a significant impact.
Virtually all studies show that high wages are simply not the
main cause of job losses and slow job creation.
The People’s Budget has called for the use of public works
and community-service programmes to provide some
financial support, training and social integration for the
unemployed while meeting the needs of poor communities.
More fundamentally, a process of sector summits, as
agreed at the Presidential Jobs Summit in 1998, should
encourage economic growth and employment creation. The
DTI must use its supply side measures to support this type
of restructuring, which means also extending them to the
service sectors as well as to production for the domestic
market.
Finally, we need a substantial acceleration of land reform,
including a large increase in funding for land acquisition and
support for new farmers.
The government’s target of redistributing 30 per cent of land
can only be met with an increase in funding for land
acquisition. In addition, funding for capacity
building and extension to support new smallholders must be increased
substantially, in order to establish a viable and dynamic rural economy.
· Military spending
The decision to engage in large-scale military procurement
has placed pressure on the ability to increase services for
the poor. The real security for our country will come from
eliminating poverty in the southern African region.
For this reason, the People’s Budget expects that revised
plans for the financing of the deal will reflect an official
decision to decline the optional purchases associated with
the contracts, and that every effort will be made to ensure
both minimal expenditure and strict adherence to local
production and investment commitments.

Patrick Craven and Moloto Mothapo
Acting COSATU Spokespersons

[email protected]
082-821-7456
339-4911

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