MINISTER MISSES OPPORTUNITIES FOR REDISTRIBUTION, BUDGET REFORM

The following statement was drafted by delegates from SACC member churches and church-related organisations who gathered at a workshop in Cape Town, 22-24 February 2000, to study the 2000/2001 budget proposals. The full text of the Minister's Budget Speech and all budget documents are available on from the Department of Finance web site

During yesterday's Budget Speech, the Minister of Finance, Trevor Manuel, reminded his audience that "our success as a nation depends on our ability to reduce inequality and overcome poverty .... [O]ur focus must continue to be on extending social services particularly to the poor and most vulnerable." Regrettably, the 2000/2001 budget misses many opportunities to promote these vital objectives.

Faulty macroeconomic prescriptions

Once again, the budget is grounded in the dubious assumption that reduced budget deficits, deregulated markets, and a diminished debt burden will stimulate vigorous economic growth, create jobs, and promote equity. Over the past four years, however, this prescription has achieved none of these goals. Instead, real GDP growth has been less than 2 percent, the economy has shed one million jobs, and gross fixed capital formation has begun to shrink.

Some elements of the budget may even accelerate this decline. The Minister's plans to liberalise exchange control in keeping with IMF orthodoxy, for instance, threaten to undermine domestic capital formation by facilitating capital flight. Furthermore, we are outraged that, in spite of the Minister's commitment to reducing debt, the government recently approved plans to borrow an additional R30 billion to finance the purchase of sophisticated new weapons. It is time for South Africa to adopt a new development strategy that emphasises state-led investment in social infrastructure and meaningful redistribution.

Redistribution

Despite the Minister's rhetoric, this is not a budget that consistently redistributes wealth in favour of the poor. We applaud the modest increase in the health budget and the more substantial improvement in the budgets for land affairs and public works. We are especially encouraged by the growth in funding for land reform, restitution, and community-based public works schemes. Meanwhile, the housing, pension, and education budgets have been cut in real terms. We are particularly dismayed by the freezing of Child Support grants and the failure of old age, disability, and care dependency grants to keep pace with inflation. The paltry R20 per month (3,8 percent) increase in pensions is an insult to the generations that raised us.

We concur with the Minister's observation that "the benefits of government programmes cannot simply be measured by departmental expenditure records. Much depends on ... how effectively resources are used." We regret therefore, that the supporting documentation accompanying the budget does not more clearly detail outcomes. This is a particular problem with interdepartmental programmes such as the poverty alleviation and job creation fund. We call on the government to report expenditure in a manner that facilitates impact analysis and to evaluate both departmental and interdepartmental spending on a regular basis. Such evaluations should involve civil society and should identify each programme's specific contribution to job creation and poverty alleviation.

The government's new tax policies also have very mixed redistributive implications. The introduction of a capital gains tax is an important move that will close a major tax loophole for more affluent households and release new resources for social investment, provided the tax is effectively implemented and enforced. We welcome cautiously the proposed amendment of the Income Tax Act to allow the deduction on tax returns of donations to pre-primary and primary schools and organisations caring for children, the aged, and those infected with HIV. However, we believe that the state retains primary responsibility for the provision of these services.

On the other hand, we are extremely disappointed with the announced tax reductions. Although the cuts will enhance the progressiveness of South Africa's tax structure, wealthier people will ultimately be the greatest beneficiaries. Those earning R50 000 a year or less will realise returns of less than R1000, while those earning four times as much will enjoy a windfall of R7560. Moreover, the plan will diminish revenue by nearly R10 billion. Thus the nation's poorest households--those with annual incomes that fall below the current tax threshold--will not only realise no direct benefit from the tax cuts, they will inevitably bear the burden of the state's reduced capacity to finance service delivery.

Budget reform

The shortcomings of the budget are largely attributable to the lack of a democratic and participatory budget process. The three- year Medium Term Expenditure Framework (MTEF) is a welcome aid to planning and economic stability. However, it also gives a small group of economic specialists--and their international advisors-- greater control over the preparation of the budget and, consequently, the determination of spending priorities.

We are alarmed that in the sixth year of democratic government, we are still awaiting the genuine democratisation of decisions concerning allocation of public funds. Unlike the apartheid-era tricameral constitution, which stripped Parliament of its power to amend money bills, the democratic constitution clearly intends that Parliament should have oversight over public spending. We urge the Minister of Finance to introduce, without further delay, legislation that empowers Parliament to amend the budget, as envisioned in section 77 of the constitution. This must be coupled with new mechanisms to enhance Parliament's research capacity so that it may make informed contributions to the refinement of the budget.

Parliamentary oversight is a necessary, but not a sufficient, condition for asserting democratic control over the national budget. The budget process must also provide formal opportunities for broad participation in the identification of budget priorities at the earliest stages of planning. This might be accomplished through public hearings or through some other open and consultative process. Without such reforms, redistribution and poverty eradication are likely to slip further down the budget agenda.

South African Council of Churches (SACC)
Ecumenical Service for Socio-Economic Transformation (ESSET)
Cape Town