The People's Budget Campaign (made up of the SACC, COSATU and SANGOCO) launched the fourth annual People's Budget on 16 February 2004, on the eve of the national budget speech. The 42-page document assesses the progress achieved in public service delivery during the first ten years of democracy and identifies challenges that remain unmet. Looking ahead to the 2005/06 budget, it calls for the adoption of an integrated poverty eradication strategy and a more expansionary fiscal policy that could improve incomes, build capabilities, and redistribute assets through reallocation of resources to land reform, housing free basic service delivery and comprehensive social security, including a Basic Income Grant.

The 2004/05 Budget: Is it a People's Budget?

On 18 February 2004, the Minister of Finance, Trevor Manuel, tabled the 2004/05 National Budget in Parliament. On balance, the news was good. In contrast to the highly restrictive policies of the late 1990s, the government continued the expansionary trend of recent years. Despite slower than expected growth in the overall economy, Minister Manuel tabled a budget that provides for 6,3% real (inflation-adjusted) growth in non-interest expenditure.

Consolidated National and Provincial Spending by Function, 2003/04 - 2004/05

SOURCE: 2004 Budget Review
* Adjusted using CPIX for 2003/04 of 5.4%
** Includes unallocable expenditure

Furthermore, over half of all resources will be spent on social services: health, education, welfare, and housing. Welfare spending is expected to grow particularly dramatically - 10,4% in real terms. Although pensions and child support grants will just keep pace with inflation, rising by R40 and R10 respectively, the increased allocation will finance the extension of the social security net this year to include poor children aged 9 and 10. By the end of next year, all poor children under the age of 14 will become eligible for child support grants. The total number of social grant beneficiaries, which rose from 3,6 million in April 2001 to 7,5 million in February 2004, is expected to grow by at least 2 million over the next two years. Given the role of social grants in reducing the depth and incidence of poverty, the extension of South Africa's safety net can provide welcome relief to poor families.

The Minister also unveiled a R15 billion expanded public works programme that aims to create one million jobs over the next five years. Public works schemes are an appropriate way to deliver infrastructure and services in the context of an unemployment crisis that has left more than 8 million people without jobs. However, the details of this plan remain sketchy. More important, international experience suggests that short-term public works programmes are not effective in achieving sustained reductions in poverty or unemployment.

Still more must be done to combat poverty and put South Africa on a developmental growth path. In particular, government has a constitutional obligation to implement a comprehensive social protection system that can prevent all households from falling into destitution. The current strategy of extending means-tested grants and public works projects is likely to leave the most vulnerable households without adequate access to assistance. It is for this reason that the People's Budget Campaign continues to call for the introduction of a universal Basic Income Grant, as recommended by the expert panel appointed by government to assess options cost-effective social security options.

There is room for improvement in other areas, too. The budget for land reform remains completely inadequate to meet the government's target of redistributing 30% of agricultural land by 2015. Although the allocation for land restitution grants will rise by 4,7% in real terms to R775 million, funding for land redistribution will decline slightly to R308 million. The R6,3 billion housing budget is insufficient even to keep pace with the annual growth in housing needs, let alone to make substantial inroads into a housing backlog that stood at 1,4 million units in 2001. The requirement that most households earning less than R1500 a month supplement housing subsidies with nearly R2500 of their own money is a key factor slowing housing delivery and contributing to massive annual rollovers in the housing budget.

With respect to health, the Minister made the welcome announcement that during the next three years R12,3 billion will be earmarked to strengthen programmes to prevent and treat HIV/AIDS. However, only R1,9 billion of this will be spent on rolling out antiretroviral medication through the public health service. Furthermore, the growth in spending on HIV/AIDS will put the squeeze on other aspects of health spending, limiting the health service's capacity to upgrade infrastructure, hire staff and provide training, all vital to the success of HIV/AIDS initiatives.

As usual, much of the media analysis focused on the Minister's revenue proposals. Many observers expressed disappointment with a tax reduction of "only" R4 billion, dwarfed by the R28,4 billion in tax cuts made over the previous two years. Tax giveaways have become so routine in the past decade that we have come to view them as an obligatory norm rather than as a rare corrective measure. Although the cuts in personal income tax were designed to give the greatest benefit to lower income taxpayers, they provide no direct benefits to the poorest two-thirds of the population who earn less than the income tax threshold. The People's Budget Campaign has called instead for more progressive income tax rates coupled with a 1% reduction in VAT, the tax which takes the greatest share of poor people's income.

Reform of the Budget Process Necessary

Ultimately, however, the national budget cannot claim to be a people's budget unless there are meaningful opportunities for ordinary people to help shape revenue and spending decisions throughout the budget cycle. Ten years into our democratic transition, Parliament - the primary forum for interaction between civil society and government on public policy - still does not have the power to amend money bills, as required by the Constitution. Control of public resources is essential to democratic control of the economy. Democratising fiscal and budget decisions requires the creation of formal, visible and meaningful opportunities for organs of civil society and the public at large to articulate their needs and interests and to shape economic policy.

See also:
The 2005/06 People's Budget Document [PDF]
Summary of the People's Budget Proposals
People's Budget Analysis of the 2004/05 Budget [PDF]