PEOPLE'S BUDGET OFFERS ALTERNATIVES TO NATIONAL BUDGET

On the eve of Finance Minister Trevor Manuel's 21 February budget speech, the South African Council of Churches (SACC), the Congress of South African Trade Unions (COSATU) and the South African Non-Governmental Organisation Coalition (SANGOCO) unveiled a "People's Budget" designed to stimulate popular debate on certain aspects of the government's economic proposals. This update gives a brief history of the People's Budget initiative and its key recommendations. It also summarises key aspects of the 2001/02 budget.

The People's Budget

The People's Budget grew out of a process which began with the "Speak Out on Poverty" hearings convened by SANGOCO, COSATU and the SACC in 1997. At the hearings, residents of communities around the country testified to the impact of poverty on their lives. In late 1999, the three sponsoring organisations met to consider ways that these concerns could be brought to bear on the budget process. One of the strategies proposed was to identify a new macroeconomic framework together with a set of priority programmes that could accelerate poverty reduction, job creation, and social transformation. A steering committee was formed to identify shared objectives and principles and to coordinate the research and drafting tasks involved in preparing such a document.

The initiative aims to promote policies and spending patterns that will:

• reduce unemployment by creating and protecting quality jobs;
• revitalise public services;
• enable people to meet their basic needs;
• minimise poverty and promote social and economic equity through the redistribution of wealth;
• protect the environment; and
• enhance the role of the state as an engine of economic growth and development.

The People's Budget does not seek to offer a line-by-line challenge to the national budget. Instead, it identifies specific programmes--the introduction of a basic income grant and national health insurance, measures for the prevention and treatment of HIV infection, and targeted investment in infrastructure--that would generate immediate benefits for poorer households. It also proposes concrete, workable strategies to finance these programmes including modest increases in taxation and deficit spending, the introduction of a multi-rate VAT with a higher rate for luxury goods, restructuring of the Government Employee Pension Fund, and reductions in arms purchases. [Read the full text of the People's Budget.]

Church, labour and NGO representatives took part in a workshop during budget week to discuss ways to make the People's Budget a more valuable resource for popular education, mobilisation and advocacy. The workshop asked the steering committee to develop accessible materials explaining the People's Budget proposals and to facilitate discussion of these issues in key provinces so that next year's document will enjoy a broader sense of popular ownership. Debt and reparations were two of the issues cited for more comprehensive consideration in the next People's Budget.

The 2001/02 National Budget

Positive steps

• Modest expansion of social investment - Allocations for health, education, and transport increased slightly faster than inflation--but the welfare and housing budgets failed to keep pace.
• Zero-rating of illuminating paraffin - Poor households, many of which use paraffin for light and cooking, will be the primary beneficiaries of the new VAT exemption. This concession should be extended to other basic commodities, including foodstuffs and medicines.
• No further corporate tax break - Although widely predicted by business commentators, the Minister did not announce a tax cut windfall for companies.

Areas of concern

• Income tax cuts - Rate reductions will be larger for taxpayers in lower income brackets, but wealthy people will be the biggest beneficiaries. Taxes on earnings of R24 000 a year will be reduced by R340, while those earning five times as much will be better off by R3080.
• Pensions - Old age, disability, and care dependency grants will increase by R30 per month to R570, while child support grants will increase by R10 per month to R110. Although these represent modest real increases, they fail to offset the real cuts in these grants over the previous two years.
• Military spending - This year's budget includes R4,2 billion for the weapons procurement programme begun last year. The total cost of the arms--exclusive of interest on the loans secured to finance the deal--is now estimated to run to R43,8 billion over ten years, substantially more than the original estimate of R30 billion. Rearmament makes defence one of the fastest growing line items.

* Includes contingency reserves of R2523 million.
** Deflated by projected CPI Headline inflation rate for 2001/02 (5.6%)