The People's Budget 2004/05 has been drawn up by the People's Budget Coalition, which was founded by COSATU, the South African Council of Churches (SACC) and the South African NGO Coalition (SANGOCO). We are releasing it today together with a booklet, "Budgeting for People's Needs: An educational guide to budgets," that aims to help people from all walks of life engage with government budgets.

The People's Budget Coalition seeks to encourage a wider popular understanding of and engagement with the budget. In particular, we seek to provide consistent inputs from civil society into the budget process, and to educate our members and the public in general about budget processes.

This third People's Budget is designed to influence emerging spending and financing proposals over the course of the coming MTEF cycle.

1 The overall framework of the People's Budget

The People's Budget presents a developmental vision to shape proposals for the budget. From this standpoint, the budget provides a critical mechanism for an effective development strategy.

The People's Budget starts with the recognition that South Africa is in a classical poverty trap, where mass poverty and unusually great inequalities in themselves prevent rapid growth and development. On the one hand, mass poverty limits domestic demand and economic growth; on the other, it prevents the majority from getting the skills and assets they need to be economically productive. In the past decade, the rapid rise in unemployment - now running at close to 30% - has aggravated the problem.

Government intervention is critical to break the vicious cycle of poverty. In particular, programmes to enhance the social wage must:

• Transfer productive capacity and skills to the poor, through improved provision of basic infrastructure and social services as well as targeted support for small and micro enterprise, including land reform; and
• Phase in a comprehensive social protection package to address various aspects of poverty, including a universal system of income support to ensure that no South Africa suffers hunger or destitution.

As the RDP proposed, to promote sustainable development, the social wage must be linked much more closely to economic development policies.

This approach contrasts with the view that government expenditure, far from stimulating growth, will "crowd out" private investment and so undermine economic expansion. This perspective, embodied in GEAR, shaped government fiscal policy in the late 1990s, leading to persistent budget cuts, in real terms. It is no coincidence that the late 1990s were also associated with economic stagnation and massive job losses.

The People's Budget welcomes government's adoption of a slightly more expansionary fiscal strategy in recent years. However, enabling our people to grow the economy requires an even more robust expansion in government spending, as well as more effective programmes to raise living standards of poor households while enhancing their economic opportunities.

2 Proposals to improve the social wage

To ensure more effective use of state resources, the People's Budget makes a set of specific proposals for major reforms in key programmes, especially with respect to the big social services - social security, health and education.

On social security, the People's Budget reiterates its call for a Basic Income Grant (BIG) as a key component of a more comprehensive social protection package. Research has shown repeatedly that the current system of grants does not reach many very poor households, including those headed by AIDS orphans and unemployed young people. The BIG would provide all adults with a small amount every month. Because it would be universal, it would be relatively easy to administer. More important, a BIG would be developmental, stimulating consumer spending and job-creating local economic growth and enabling poor households to take the sorts of risks inherent in job seeking and entrepreneurship.

From this standpoint, current proposals to improve the Child Support Grant are welcome, but will not adequately address all the gaps in the current social-security framework. Any programmes designed to strengthen the social wage must go considerably further in order to reach all poor households. In particular, we are concerned that the current proposals for the Child Support Grant:

• Retain the means test, which is difficult to administer and prevents otherwise eligible households from getting the grant;
• Do not adequately address the problems of getting identification for children and proving who is responsible for them - two important obstacles for eligible families;
• Will not reach the many young, unemployed people who do not have young children.

In health, the People's Budget calls for a genuine National Health Insurance (NHI) system and substantially improved treatment for people with HIV.

An NHI system would replace the current chaotic and overly expensive system of medical aids with a single, state-administered fund. The result would be greater efficiency and equity in the health system and, in the long term, reduced administrative costs.

In contrast, government's current proposals for a social health insurance system seem likely to accelerate the already intolerable increase in the cost of medical aids. They would not, however, adequately address the substantial underfunding of the public health system. Moreover, they seem likely to impose unaffordable burdens on the working poor.

On HIV/AIDS, the People's Budget supports a comprehensive programme that would include the provision of anti-retrovirals through the public health system as well as a much more systematic and comprehensive campaign for prevention and support for people with HIV/AIDS.

On education, the People's Budget is very concerned that the current system of user fees maintains the inequalities inherited from apartheid, although now on the basis of class rather than race. The latest data, from Statistics South Africa's survey on incomes and expenditure in 2000, proves that the user fees are highly regressive. That is, poor people pay a substantially higher share of their incomes for school fees than do the rich. In addition, school fees effectively keep poor children out of the better-equipped Model C schools.

The People's Budget also proposes substantial improvements in the provision of basic infrastructure and housing for the poor.

Above all, the current system of user fees for basic electricity and water impose very high costs on the poor, leading to shut offs on a mass scale and even evictions. Statistics South Africa's survey of incomes and expenditure shows that these service charges average 10% of household income for urban families earning under R1000 a month, compared to 0,5% of income for those earning over R8000 a month.

While service charges impose high costs on poor households, they only contribute about 10% of all service charges in urban areas; in contrast, the very rich pay about a third of these charges. By extension, a small shift in the structure of service charges to increase cross subsidisation would reduce the burden on the poor without substantially enhancing the cost to the rich.

The People's Budget is also concerned that current housing programmes are not adequately linked to community and economic development. In particular, housing is often located far from job opportunities and social services. This type of housing programme is not sustainable and will not contribute to balanced economic growth to the extent expected by the RDP. In future, subsidies should be much more clearly linked to integrated planning processes, including through local governments' Integrated Development Plans.

The People's Budget also calls for a strong expansion in the land reform programme. Its evidence demonstrates that the programme is substantially underbudgeted. Moreover, it points to the need to redefine the functions of agricultural departments to ensure that they do more to serve smallholders and support the land reform programme.

Finally, the People's Budget notes the need for urgent measures to enhance food security. In particular, there is evidence that the current high prices for food reflect the market power of some groups in the maize chain, particularly in storage and wholesale trading and in retail.

To address this problem, the People's Budget calls for better monitoring of food prices; the use of fees or taxes to prevent profiteering in basic foodstuffs; and stronger supply-side measures to enhance maize production in South Africa and throughout the southern African region. In addition, the People's Budget supports government's commitment to improving welfare grants and the school feeding schemes to cushion the poor against excessive food prices.

3 Funding stronger programmes

Research conducted for the People's Budget in the past three years shows that government can increase spending considerably. A small relaxation in the current strict targets on taxes and deficits relative to GDP would yield a substantial increase in resources. If used appropriately to address the developmental deficits inherited from apartheid, this would, in turn, strengthen economic expansion, permitting a reduction in taxes and borrowing relative to the GDP in the longer run.

From this perspective, rather than continuously reducing tax rates, government should use its higher-than-expected revenues to fund improvements in the social wage. That would do more to stimulate growth than income tax cuts, which do not affect the tax burden on the poor, or contribute to employment creation and economic growth.

In addition, the People's Budget argues that government should do more to prioritise spending on socially desirable programmes. In particular, it should ensure a restructuring of the financing of the Government Employees Pension Fund (GEPF) to reduce the funding level. It should also reduce its military spending commitments.

4 Budget reform

Ultimately, an effective budget geared to meeting the needs of our society must be more open to debate and discussion by stakeholders. In recent years, government has made commendable efforts to make the budget process more transparent. But it has not opened up the process to consistent public input or made it more accountable to Parliament.

Parliament still cannot amend the budget, but only vote it up or down. This runs contrary to Constitutional requirements. Limiting opportunities for Parliamentary comment also reduces the role of civil society, which would normally seek to influence the process principally through interactions with Parliament.

5 The Educational Campaign

The People's Budget Coalition sees public engagement with the budget as critical for strengthening our democracy. To support this process, we have developed an educational booklet, "Budgeting for People's Needs: An educational guide to budgets".

The booklet includes sections on how to read budgets, ways to interact with the budget process, and the main debates around the budget. The organisations in the coalition will use it for educational work with members. In addition, we hope the booklet will help other groups and individuals to develop claims and engage around the budget.

6 Conclusion

The People's Budget argues that government spending is a critical investment in our future. Above all, in line with the RDP's basic strategy, we must do more to link social protection, employment creation and economic development. To achieve these ends requires a substantial increase in spending. If used for developmental programmes, the result will be a sustainable and robust improvement in economic development, which will in turn permit lower levels of taxation and borrowing in the longer run.

Read the People's Budget