Submission to the Joint Budget Committee

1. Introduction

The People's Budget Campaign (PBC) welcomes the invitation by the Joint Budget Committee of Parliament (JBC) to make a submission at the public hearings on the Medium Term Budget Policy Statement (MTBPS). We commend the JBC's role in bringing members of Portfolio Committees directly concerned with line departments and delivery issues more actively into the budget process.

Notwithstanding the 5 themes identified by the JBC for these hearings, viz Rural and Urban Development; Justice and Protection Services; International Relations/Participation; Employment and Economic Growth; and Social Security, our submission has elements that address several of these themes. We have divided the submission into sections as per previous People's Budget Submissions.

The People's Budget Campaign is comprised of the South African NGO Coalition (SANGOCO), the Congress of South African Trade Unions (COSATU) and the South African Council of Churches (SACC). It represents the three key pillars of civil society, namely the church community, non-governmental organisations, and trade unions. Our response to this year's MTBPS is informed by the discussions, deliberations and resolutions emanating from our recent 3^rd People's Budget Consultative Conference and reflects the subsequent analysis of and response to the MTBPS by these three organisations.

This submission:

• Outlines the purpose and objectives of the People's Budget,
• Assesses the macroeconomic context for the MTBPS,
• Discusses the impact of recent policy developments on unemployment, poverty and inequality,
• Comments on expenditure and revenue aspects of the MTBPS with specific reference to trends in employment, social protection, health, land and rural development, and housing, and
• Proposes budget process reforms to enhance public oversight and participation.

2. The People's Budget

Launched in 2000, the People's Budget Campaign had, as its central objective, the presentation of alternative Budget proposals, which would give effect to developmental priorities.

At that time, an overly restrictive fiscal framework seriously limited the revenue available to eradicate poverty and support employment-creating growth. Although government appears to have shifted away from this economic management model, the PBC remains committed to engaging government to ensure that recent gains are broadened in a sustainable manner.

When government tabled its National Budget in February 2003, the People's Budget Campaign also released proposals contained in the "2004-5 People's Budget - Proposals from COSATU, SANGOCO and SACC", which covered both macroeconomic parameters and programme priorities.

This budget framework was the third in the series and was preceded by a participatory research process and collaboration with experts that essentially shaped the proposals in the People's Budget. A critique of this research design informs and shapes the design of the 2005-06 People's Budget document, currently being written.

In order to develop further proposals for next year, the People's Budget Campaign commissioned papers on a range of topics that included local government budgets, provincial government budgets, employment and incomes, social security, housing, land and rural development, health and revenue strategies. Representatives of constituent organisations came together at a consultative conference earlier this month to discuss and respond to the research results. Some of the insights gleaned from this event are incorporated into this submission.

The 2004-05 People's Budget explores several themes. An analysis of the developmental challenge assesses development trends since 1994 and identifies lessons for an accelerated poverty eradication strategy. The key findings paint a disturbing picture: the poor became poorer between 1995 and 2000, the racial character of income and expenditure remain unchanged, gender and race still correlate closely to poverty and provincial disparities persist. Unemployment also remains high, having risen rapidly in the last decade. The official unemployment rate increased from 16% in 1995 to 29% in 2002, whilst the expanded unemployment rate now tops 40%. To escape this poverty trap, we proposed an investment and institutional building strategy (presented graphically in the diagram below) that requires a high level of agreement between social partners on economic policy. This strategy reflects our beliefs that:

• Poverty is about power as much as it is about resources - without fundamentally altering the balance of power between the poor and the rich, we will never be able to reach the goal of eradicating poverty. The government must step in to empower the poor economically and socially, both by improving social protection and by redirecting the economy to create employment. Measures should be taken to give the poor greater access to jobs, productive assets and skills, ensuring greater investment in industries.
• We should make winners of the poor - evidence indicates that the poor have not been economic winners in the new South Africa, despite enormous social and political gains. More needs to be done to ensure that the poor have access to basic services and infrastructure, earn a decent living and that state-provided social grants prevent people from falling into destitution.

Further, we proposed the building of developmental institutions that can place the poor at the centre of economic policy and build a national consensus on policy. Subsequent to the publication of the People's Budget Proposal 2004-5, the agreements emanating from the Growth and Development Summit, held in June 2003, provided a significant step forward in this regard.

Conceptual Framework to make economic policy more redistributive

Chapter 2 of the 2004-05 People's Budget Proposal briefly highlights the need for an expansionary budget. We contend that government cannot restructure the economy toward growth or meet the needs of the poor unless it has sufficient resources.

By extension, it is critical to expand the budget. Contrary to the National Treasury's argument that government does not have the capacity to spend more, our evidence suggests that government has the capacity to use additional funds appropriately and effectively, and that prudent increases in borrowing and taxation would not damage the economy. Greater spending could stimulate economic development and deliver benefits to the poor, in particular, via:

• Job creation through community services and public works, accelerated programmes for skills development, programmes to build up the incomes and productive assets of the poor and measures to enhance investment in employment-creating sectors.
• The introduction of a comprehensive social protection package, as recommended by the Committee of Inquiry into a Comprehensive Social Security System.

Building capacity for delivery is the third theme of the People's Budget. We found that the key obstacles to efficient government expenditure include inadequate staffing and skills. The effects of the loss of close to 120 000 jobs in the public service, and over 40 000 amongst the big parastatals between 1995 and 2002 are telling.

Measuring success only in numerical terms, irrespective of quality or sustainability has also been problematic. This chasing of numbers has led, for example to the tendency to locate houses far from industrial sites and city centres, as well as impressive results in the provision of water, but at the cost of sanitation and long-term sustainability. Yet government has already taken some steps to build the capacity to serve the poor, such as the strengthening of financial management and some government departments taking strong action on corruption.

Poverty eradication forms the largest section of the People's Budget. We propose several major initiatives to alleviate poverty and initiate more balanced growth. Essentially, the main proposals aim:

• To strengthen the social security system;
• To accelerate land redistribution;
• To establish a national health insurance system;
• To increase and improve housing and infrastructure;
• To implement a treatment and prevention plan for HIV/AIDS;
• To enhance food security.

The People's Budget strongly endorsed the balanced and comprehensive approach to poverty eradication and social protection set out in Report of the Committee of Inquiry into a Comprehensive Social Security System (the Taylor Committee report). The Report recommends the implementation of an integrated package of measures to achieve comprehensive social protection in the South African context.

These key components are detailed in the diagram below:

Source: Committee of Inquiry 2002, p.42

In order to secure the resources necessary to underwrite these programmes, we propose a financing package that involves maximising tax capability, resetting macroeconomic parameters, redirecting spending on arms procurement, restructuring VAT, and restructuring the Government Employees Pension Fund (GEPF). In our submission to the 2003 MTBPS, we expand on these proposals substantially.

The final chapter of the 32-page Proposal urges the deepening of democracy and the consolidation of a partnership between parliament and civil society. It calls for the introduction of legislation to give full and expeditious effect to Section 77 of the Constitution so that Parliament can fully be empowered to amend the Budget. The People's Budget also called for opportunities for input, both public and Parliamentary, that must be introduced throughout the budget cycle. Whilst we note that some movement has happened in this regard, our comments on this matter are raised later in this submission.

3. Contextualising the 2003 MTBPS

The 2003 MTBPS was published subsequent to the Growth and Development Summit (GDS) Agreements in June 2003 and the release of the 2001 Census Survey results earlier this year, as well as the publication of government's preliminary 'Towards a Ten Year Review' document.

The 2003 MTBPS is a policy framework that according to the National Treasury, 'promotes growth and development through investment in infrastructure, reinforcing education and skills development, support for targeted poverty reduction programmes and continuing improvements in public service delivery'. Whilst we may agree with most elements of this claim, and welcome the significant shift in policy thinking towards government being a centrally involved in driving investment in infrastructure and increased social spending, the precarious and critical social and economic situation in South Africa underscores the need for drastic action by government.

Macroeconomic strategy - the broad policies, including monetary and fiscal policy, government employs to ensure economic stability and growth - can either assist or constrain development to the extent that resources are made available to implement developmental programmes. During the period 1996 - 2001, the emphasis on fiscal austerity, led to what we previously called a 'perverse planning paradigm' where 'developmental objectives have been supplanted' by efforts to reduce the deficit.

We are therefore cautiously optimistic to see that government has moved away from its previously flawed assumption that a tight fiscal and monetary policy would attract private investment that in turn would drive economic growth, create jobs, and lead to a more equitable income distribution. In reality, the role that private capital played within this context, leading to job shedding and capital disinvestments, should not be forgotten.

For the first time, government appears to have taken a long and hard look at its accomplishments and, equally, its shortcomings. 'Towards a Ten Year Review' appears to acknowledge, if only tacitly, that government should be more directly involved in addressing such critical challenges as rising unemployment, rapid urbanisation, and HIV and AIDS.

The recovery of lost ground, in terms of socio-economic development requires the massive mobilisation of resources by government and the development of incentives for business to assist government in this regard. These incentives should however, not repeat the devastating experiences of job-shedding economic growth and should therefore be carefully monitored by government. To this end, the GDS objective of halving unemployment by 2014 is central to the social compact of agreed social and development goals.

The People's Budget Campaign remains convinced however, that more could be done to release government resources so as to ensure economic growth, address poverty, and create much-needed employment.

4. Overall macroeconomic analysis

Several macroeconomic parameters were significantly revised in this year's MTBPS. GDP growth is forecast to be 2.2%, down from the 3.3% expected at the time of the Budget. Despite this, gross domestic expenditure is set to remain constant in 2003, with growth in subsequent years forecast to be 4.7%, up from the 3.8% projected at the time of the Budget. This, according to the Treasury is attributable to 'a steady growth in consumption expenditure (up by 2.8%), continued exceptional growth in investment spending (up 7.7%); and an expansionary fiscal stance (government expenditure up 3.6%).' We welcome this commitment to much-needed spending, especially within the context of lower than anticipated GDP growth.

The specific macroeconomic parameters reflected in this year's MTBPS, demonstrate a significant shift in mobilising resources for government expenditure. We welcome the break from chasing tight deficit targets, such as the 1.2% of GDP in 2002/3, to an average of around 3.0% of GDP over the MTEF period. The upward revision of next year's target, effectively doubling the deficit, frees up over R18 billion for additional spending in 2004/5.

The People's Budget believes that the decision to allow the budget deficit to rise above 3% of GDP in 2004/05 and 2005/06 reflects government's view that fiscal policy can be used more aggressively and effectively to meet social needs and build growth enhancing economic infrastructure. Indeed, the expansion of the deficit:GDP ratio by 2% in 2 years allows an increase in government spending capacity of just over R26 billion. We have consistently called for a shift in this direction.

During this period when growth and revenue projections are not being realised, government is able to infuse significant resources into the economy, thereby providing a counter-cyclical boost. However, in order to address the huge backlogs in service delivery, as well as the persistent inequalities that still plague South Africa, the People's Budget hopes that this pattern will be sustained in the long-term and not be abandoned or compromised in response to global economic trends.

The People's Budget Campaign therefore welcomes the commitment to expanding real growth in public spending. The growth of 5,7% in non-interest government spending in real terms over the next three years continues the moderately expansionary trend of recent years. Other than a slowdown in the global economy, to which government attributes this development, there are also significant domestic factors that contributed to a decline in growth.

A substantial part of the Minister of Finance's MTBPS speech was devoted to inflation targeting. He asserted that the 'development agenda rests on the foundations of the macroeconomic consolidation we have achieved - a moderate budget deficit, a healthy balance of payments and lower inflation'.

CPIX inflation is now estimated to average 6,9 per cent in 2003, compared to the the February budget estimate of 7,7 per cent. Fluctuations in the CPIX inflation from 11,3 per cent in October 2002 to the year-on-year inflation 5,4 per cent in September this year are attributed to, among other, the steep depreciation of the rand in 2001. The latter figure is in line with the inflation target range of 3 to 6 per cent, and government anticipates that it will to remain in this band over the three years.

Whilst the moderation in inflation over the past year did allow the Reserve Bank to lower interest rates by five percentage points since June, thereby bringing relief to certain households and more favourable conditions to business investment.

The People's Budget remains concerned however, that keeping inflation under control is an important element of a stable macroeconomic framework. Slavishly chasing inflation targets in a manner that results in other developmental pathologies is not acceptable. As with the previous preoccupation with chasing deficit targets, inflation targeting, if not appropriately balanced with other priorities, could also detract from the real crisis in South Africa, namely high unemployment and poverty.

In 2002, food prices rose in May alone by 14 percent, compared to 7 percent for other goods and services. Persons in the lowest income category spend at least a third of their income on food, have seen their real living standards falling. The most immediate challenge we contend, is to find ways to hold down food price increases instead, which are the single most important cause of inflation.

There has not been the concomitant drop in food prices with the recent inflation decreases. As a result, we hold that the quality of life of the poor and the purchasing power of their meagre disposable income remain unsustainable.

5. Revenue

The People's Budget believes that still more resources could be released for social development. In terms of revenue from taxes, it is disappointing to learn that government chose to hold the tax:GDP ratio below 25% for the life of the new MTEF. We contend that this contradicts earlier views expressed at NEDLAC and statements by the Minister earlier this year.

Allowing the tax:GDP ratio to increase moderately above this self-imposed limit could generate several billions more for social investment without damaging the economy. We remain convinced that there is room for an even bolder fiscal approach. We previously recommended a tax:GDP ratio closer to 29%.

We commend the South African Revenue Service for achieving improved revenue collection capacity over the past few years. They have succeeded in substantially broadening the tax base. The People's Budget Campaign has consistently been critical of government's tax policy design however. We have objected to the repeated and significant personal income tax cuts, as such relief inevitably accrues to the comparatively affluent households required to pay personal income tax. By Treasury's own admission, the cumulative impact of the tax cuts made since 1995 now account for R62 billion in revenue foregone annually.

The relationship between tax cuts and improved economic growth is loose at best. There is little evidence to show that tax cuts stimulate economic growth in South Africa - as is evidenced by the lack of impact on savings or economic growth during the past few years. We remain mystified as to why further personal income tax relief was given to low and middle-income earners in the 2003/4 period, if the shortfall on targetted revenue was anticipated.

The Draft Revenue Laws Amendment Bill presented by SARS a few weeks ago, provides evidence of ongoing efforts to close tax loopholes, crack down on tax evaders, and prevent corruption. This work is to be commended, as is the attempt to minimise the abuse of VAT invoices by requiring a VAT registration number of the recipient vendor as well as names and addresses for purchases of R1000 or more and the enforcement of compliance with PAYE and UIF requirements.

It appears that no attention has been given to the People's Budget Campaign's request to introduce a multi-tiered VAT system. We have called for the VAT system to be less regressive, thereby reducing the tax burden on the poor without having a negative effect on overall revenue. By increasing the number of zero-rated basic goods, while at the other end introducing a category of luxury goods to be taxed at a higher rate, much relief can be provided for low income earners and persons not benefiting from tax relief, a system consistent with international practice. Instead, we note that VAT increased as a percentage of GDP from 5.9% in 1994/95 to a projected 6.6% in 2003/4, which we find unacceptable. If government can afford to reduce tax revenues, we believe that a reduction in VAT rates would have greater and more direct benefits for poor households that must spend a higher proportion of their income on VAT.

Government's decision, announced in the 2003 Budget, to reduce the rate of tax on retirement funds from 25% to 18% as an interim reform measure requires further scrutiny. The MTBPS does not expand on the rationale for this, other than commenting on the need to have a holistic approach to pension fund reforms. It claims that this is in order to enhance an effective culture of savings and old age income provision, as well as concerns on the equity of the retirement tax system that provides limited benefit to lower income individuals. It is hoped that clarity will be given in this regard when the 2004 Budget is presented.

The People's Budget is relieved that the proceeds from privatisation/restructuring of state-owned assets is no longer reported as revenue. In fact, we are pleased to note that instead, government expects the parastatals to increase their investment substantially. It is hoped that this points to a more sensible approach to restructuring state assets in the future.

Finally, we reiterate our longstanding opposition to the costly strategic defence procurement package and call on government to decline the third tranche of the arms deal when the options come due in 2004. Spending on arms is inherently anti-developmental, even in the unlikely event that the so-called 'developmental offsets and benefits' from arms procurement are fully realised. Declining the remaining 19 JAS Gripen fighters would release roughly R8 billion in additional funds that would be better spent on social investment.

6. Overall Expenditure

The MTBPS projects growth of 4,4% in overall non-interest government spending in real terms over the next three years. The People's Budget Campaign welcomes this slight acceleration of the moderately expansionary trend of recent years. The table below shows the annual real growth in consolidated national and provincial expenditure by type of service over the life of the MTEF, using the GDP deflator.

Table 3.1: Annual Real Growth in Consolidated Spending by Type of Service

Although this table shows that most categories of spending will experience real growth over the MTEF period, per capita real growth is negligible or even negative in some sectors, particularly in the key area of education.

By relaxing the tight fiscal framework of the late 1990s and allowing modest increases in deficit spending, the MTBPS provides for substantially more spending in the key social sectors of health, education and welfare than was anticipated in the 2003 budget. These changes are vital. However, we believe that ample fiscal space remains to increase social investment still further. We use the GDP deflators for each year as provided in the MTBPS on p.7 of the document.

The People's Budget believes that there is a need to further investigate the appropriateness of growth path and a need to track real per capita growth and per capita GDP. For example, the increase in population growth between 1996 and 2001 by just over 4 million South Africans does significantly impact on the GDP per capita, a factor that was not seriously taken into consideration.

Rough calculations reveal that GDP per capita for 2003 amounts to R26 495 p.a., compared to R 24 514 p.a. for 2001, a nominal increase of just over 8.0%, not even taking inflation or annual population growth into account.

6.1 Expanded Public Works Programme

We welcome the Expanded Public Works Programme, as per the agreements of the Growth and Development Summit. The MTBPS allocates a total of R44,6 billion for conditional grants to provincial and local government over the next three years, and increase of R3,2 billion on the baseline allocations in the 2003/04 Budget. The framework and conditions for such grants will be revised to prioritise the use of labour-intensive strategies in infrastructure delivery.

Government is to be commended for this initiative. At the same time, we are eager to gain a clearer sense of the extent to which this additional funding and the revision of grant conditions will enable sustainable expansion of existing public works schemes. More detailed information on expected expenditure patterns is needed before these issues can be properly assessed. For example, as wage costs are incorporated in the aggregate figures for infrastructure spending, it is difficult to determine the likely impact of these programmes with respect to the number, duration and quality of the jobs to be created. More information is also required to enable analysis of the types of projects that will be financed and their potential to provide tangible benefits for poor communities in particular.

Government's commitment to including community services in the job creation process is particularly important. Since many of the beneficiaries of the programme will be youth, it is critical that the programme is linked to substantive training opportunities. An effective monitoring mechanism must also be put in place to assess the programme's effectiveness in delivering benefits to especially vulnerable and marginalised groups, such as women, youth and the disabled.

The Expanded Public Works Programme will go some way towards opening up new economic opportunities to those who are effectively excluded from the formal economy at present. However, given the scope and depth of South Africa's overlapping crises of unemployment, poverty and inequality, public works programmes can only hope to reach a relatively small proportion of the roughly 24 million people living in poverty. There is therefore an urgent need to address gaps in our social security system, as part of an integrated and complementary effort to provide comprehensive social protection to all of our people.

6.2 Comprehensive social protection

We note with approval that welfare and social security spending increase particularly strongly over the next three years, at an average annual rate of nearly 7% in real terms. In fact, the share of the budget devoted to social security rises from 15,8% in 2002/03 to 18,1% in 2006/07. This represents a significant shift in spending priorities.

Furthermore, we welcome the allocation of additional funds to enable government to fulfil its pledge to progressively extend the Child Support Grant (CSG) to children under the age of 14 by 2005/06. Given the acknowledgement in the Ten Year Review of the central role of social grants in alleviating poverty, expanding social security to reach the nearly 12 million people who live in households with no access to social assistance, must remain a top priority of government.

Social grants are a lifeline for many households as entire families can depend on a single monthly grant in order to get by. Means testing and other eligibility requirements continue to be formidable obstacles to take up by the poorest households. A lack of cash often prevents poor households from accessing other government services, such as health care and education. The current social assistance system leaves a number of vulnerable groups, including the working poor and people living with HIV and other chronic illnesses, without adequate coverage.

Consequently, we remain committed advocates for the introduction of a developmental Basic Income Grant (BIG) as part of a comprehensive social protection package. Only such a universal grant can reach the poorest households who are effectively excluded from social assistance at present. A BIG could stimulate local economies, promote consumer spending, and create jobs. It would enable people to build sustainable livelihoods by investing in education, job seeking and entrepreneurial activities. We see the extension of the CSG as one milestone along the road to a more comprehensive system capable of providing social security to all, as required by the Constitution. On its own, however, the CSG cannot reach this goal since it excludes households that do not have children of eligible age.

The MTBPS makes provision for the establishment of a National Social Security Agency, as mandated by legislation now before the NCOP. Coalition partners initially had grave reservations about this approach to grant management. Whilst we welcome the centralisation of grant disbursement and the potential for a more uniform and efficient system or payments, we are concerned about plans to locate these activities in a new, quasi-public entity, rather than in the Department. However, many of our initial misgivings have been addressed during the parliamentary process. We will continue to monitor implementation carefully to ensure that the new Agency improves grant delivery.

6.3 Health

Health spending is also set to grow substantially over the next three years - by nearly 4% per annum in real terms, which means a slight increase in per capita spending on health.

The People's Budget Campaign strongly supports the implementation of a national HIV prevention and treatment plan. We therefore commend the allocation of increased funding for the roll-out of a national anti-retroviral (ARV) programme through the public health system. The Minister of Finance has indicated that spending on HIV/AIDS prevention and treatment will total R11,8 billion over the next three years, of which R1,9 billion will be allocated to provinces as additional conditional grants to finance ARV roll-out. Our only concern is that the bulk of the funding for HIV/AIDS programmes (R7,2 billion) will be distributed to provinces through Equitable Shares, the ultimate use of which is left to provincial discretion. Of the remainder, R1,6 billion will take the form of conditional grants already designated in the 2003 budget, and R1,1 billion will finance the HIV/AIDS Directorate. We have been concerned with the trend to report resource allocations for the roll-out of the ARV programme as part of an integrated package, whether in the form of conditional grants or inclusive of costs that deal with planning and administration. It would be very useful to get additional specific data on the specifics of ARV treatment programmes and the cost of these crucial medicines.

6.4 Land and rural development

Spending on land redistribution and rural development continues to lag behind other social programmes. Although the MTBPS allocates nearly R600 million more to agriculture, forestry and fishing than did the 2003 budget (an increase of 2,5%), the budget for these services barely keeps pace with inflation in most years. The total share of the budget devoted to agriculture, forestry and fishing and will actually diminish slightly over the life of the MTEF (from 2,2% to 2,1%).

The MTBPS asserts: "The land reform and restitution programmes remain central to Government's poverty alleviation strategy." (p.72) However, resource allocations do not seem to reflect this commitment.

Land redistribution, tenure reform and agrarian development are critical to transformation and the reestablishment of a stable and thriving economy in rural areas. It is not sufficient to "maintain the momentum" of land restitution and reform initiatives; they must be given higher priority and linked to appropriate support programmes that can assist land reform beneficiaries to use land productively and sustainably.

Research commissioned by the People's Budget Campaign and conducted by PLAAS found that the pace of land reform remains far too slow, despite some improvement in recent years. Current rates of land redistribution must increase fivefold if government is to achieve its target of redistributing 30% of commercial agricultural land by 2015. Although the MTBPS does not provide detail the amounts that will be earmarked for key programmes (land restitution, land redistribution, and tenure reform), PLAAS' study estimated that the land affairs budget would need to increase by at least R1.5 billion - which would mean roughly doubling the current budget - in order to meet the redistribution goals set by government.

6.5 Housing

This year's MTBPS does not break down housing allocations - which have been lumped with community development as "Other social services" - so it is difficult to isolate trends in the housing budget over the life of the MTEF. However, we share the MTBPS' stated concern over the slowdown in spending on housing. (p.75). The People's Budget Campaign has called for a higher ceiling on eligibility for a housing subsidy, improved access to credit, and capacity building initiatives to ensure effective housing delivery.

New initiatives for urban rental housing are a step in the right direction. However, the exclusion of those earning below R3500 p.m. is highly problematic, as it effectively prevents them from residing in the cities.

Recent developments within the Department of Housing indicate a shift in housing policy that would effectively facilitate increased involvement by the private sector in the provision of housing, effectively encouraging a kind of public private partnership.

6.6 Provincial and local government budgets

Time constraints prevent us from commenting extensively on the division of revenue between the three spheres of government.

It is clear though that local government will be a key sphere in the delivery of basic services to people. We therefore welcome the increase in the equitable share to local government from R12.0 billion in 2003/4 to R17.1 billion in 2006/7, but would like to see further details on targeted spending in this regard.

We remain convinced that there are far more labour-intensive mechanisms to render services than public private partnerships and that restructuring of the electricity sector in particular has seriously compromised the already strained finances of poor municipalities. With these developments in mind, we remain convinced that the increased allocations of functions of powers and functions to local government, without the concomitant funding from national government, remain 'unfunded mandates' that most municipalities will struggle to deliver.

The People's Budget notes the prevalent phenomenon of poor community participation at local government. Genuine community participation in Integrated Development Planning processes is under-funded and municipalities should be directly involved in this important issue.

We therefore call on government to provide clarity on how local government grants should be spent, in particular on guidelines for ward committees and civil society to ensure participation. We also call on government to provide further clarity on the free basic services, specifically free water and electricity and especially to rural households

7. Reforming the Budget Process

The transformation of the economy and democratic control over the allocation of public resources depends to a great extent on the reform of the budget process. After nearly a decade of democracy, Parliament - the primary mechanism for public engagement with policy development - still has no effective power to amend government spending proposals, despite the Constitutional requirement that powers to amend money bills be extended to parliament 'within a reasonable period'.

Without amendment powers and the capacity to interrogate budget proposals, parliament exerts only an advisory influence over public spending patterns. Civil society organisations, who make difficult decisions concerning the deployment of scarce human and financial resources, find it difficult to justify the commitment of both financial and human resources to a process which cannot reliably offer the prospect of change.

The Joint Budget Committee is a welcome mechanism to promote and structure both civil society and parliamentary engagement with the budget process, particularly with respect to macroeconomic policy and the broad contours of the budget framework. We believe that the Committee's role in this regard will become increasingly important.

However, we believe that the budget process must undergo further reforms to enhance Parliament's capacity to exercise its oversight functions and to facilitate broad public participation in decisions about the deployment of public resources. The People's Budget Campaign has identified a number of principles that should motivate and guide these reforms, including:

• Section 77 of the Constitution must be implemented fully and expediently so that Parliament can amend money bills;
• Parliament must be given substantial and meaningful amendment powers - rather than being confined to tinkering with the details - so that it can exercise its democratic mandate as an instrument of popular sovereignty;
• Parliament must have adequate and appropriate research and analysis capacity to enable it to use its powers effectively;
• NEDLAC and civil society organisations must have structured opportunities to make substantive input on the budget, particularly around expenditure;
• Opportunities for input, both public and parliamentary, must be introduced throughout the budget cycle. They should not be confined to the final stages when substantial changes become difficult to incorporate without causing serious disruptions.

The introduction of legislation on budget reform has the potential to deepen democratic control of the economy and to consolidate a partnership between parliament and civil society. The People's Budget Campaign has analysed a number of the issues that must be addressed in drafting money bill amendment legislation.

The 2004/5 People's Budget contained detailed recommendations regarding the scope and content of parliamentary amendment powers, the enhancement of parliamentary capacity to engage budget issues, and the creation of new opportunities for broader public participation in decisions about the allocation of public resources. We would welcome an opportunity to discuss these proposals in greater depth with members of the Joint Budget Committee at an appropriate time.

In the meantime, the People's Budget again calls on the Budget Committee to ensure the tabling of an adequate Money Bills Amendment Procedure Bill as a matter of urgency. The Portfolio Committee on Finance has in the past expressed support for such legislation, but was not satisfied with the draft tabled previously by the Department of Finance.

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 - in the budgetary process.

8. Conclusion

Since 2000, the People's Budget Coalition has brought the voices of key sectors of civil society together to articulate alternative budget priorities in the People's Budget. This was accomplished through the engagement of affiliates of our three constituent organisations - churches, NGO's and trade unions - as well as other elements of civil society outside of the coalition itself.

In 2003, provincial workshops and consultations were held prior to our Consultative Conference a few weeks ago, where our constituencies responded to and engaged on key economic issues, as well as speaking about their own needs. In February 2004, we will be presenting an expanded and revised People's Budget document.

We hope that the proposals contained in that document will serve as the basis for further engagement with government to strengthen the budget's capacity to eradicate poverty, create quality jobs, and meet the needs of all of our people.

For more information contact:
COSATU Parliamentary Office - (021) 461 3835
SACC Parliamentary Office - (021) 423 4261
SANGOCO Head Office - (011) 403 7746