PEOPLE'S BUDGET CAMPAIGN CALLS FOR A BUDGET FOR THE POOR

Note: Since mid-2000, the SACC has been working with the Congress of South African Trade Unions (COSATU) and the South African NGO Coalition (SANGOCO) to develop a People's Budget that presents an alternative macroeconomic framework and public spending priorities for South Africa. The first People's Budget document was unveiled on 20 February 2001, on the eve of Minister of Finance Trevor Manuel's budget speech. The following is a joint statement from the three organisations responding to the budget speech. The SACC made a more brief response the previous day.

The People's Budget Campaign, led by COSATU, the SACC and SANGOCO, is disappointed that the new budget does not initiate the basic changes in government programmes required to ensure economic development and social progress, although it does reverse the trend toward budget cuts seen in the past four years. Instead, it reflects the contradictions in government policies pointed out by the People's Budget 2001. Above all, the call for more spending to fight poverty is blocked by the emphasis on broad incentives to business to boost economic growth and while giving huge sums for arms procurement.

This contradictory strategy perpetuates the structural problems in the economy that lead to rising unemployment and deepening poverty, which in turn place rapid and sustained growth out of our reach.

In this budget, cuts in income tax and exchange controls combined with accelerated privatisation are supposed to stimulate higher investment in the economy. These proposals cannot solve the structural problems that lead to job losses and continued massive income inequalities. They fly in the face of our experience over the past five years.

As in previous years, the income tax cuts are still geared to the rich. How can government justify 3-per-cent relief for the rich, with only about 1,5-per-cent tax cuts for the worst-paid taxpayers? Moreover, only the best-paid 20 per cent of individuals pay any income tax at all. The rest must still pay VAT, which remains highly regressive despite the zero-rating of paraffin. The tax cuts reduce the ratio of tax to GDP, limiting the resources available for fighting poverty.

The proposed wage subsidies have the advantage of turning attention to job-creating growth. Still, at R600 million, they cannot go far enough. In any case, they do not address the structural problems that foster capital intensity -- above all, the continued emphasis on export-driven growth based largely in minerals production.

The budget stresses privatisation of the big state-owned companies and through so-called public-private partnerships. But the private sector can only provide services to those who can pay. Given massive income inequalities -- and South Africa has the third worst distribution of income in the world -- that means they will not meet the needs of the majority. If state-owned enterprise must compete with private providers, they will be put under pressure to follow a similar policy to maximise their returns.

We are particularly concerned that the Budget Review stresses the importance of privatisation for reducing government's debt. This introduces purely fiscal pressure to privatise, which -- as the Department of Public Enterprise notes in its policies -- can lead to unwise, short-term decisions on the sale of assets.

The budget does not make any commitment to restructure the funding of the GEPF. The proposals in the People's Budget to that end would free up substantial resources for social programmes.

Meanwhile, government continues to pour money into arms procurement. This year, the arms budget is expected to rise 14 per cent, or 8 per cent after inflation. Just this year, the cost comes to R4,2 billion, or almost 50 per cent more than last year. Current projections indicate the costs will peak in two years, at almost R6 billion. In comparison, government has budgeted only R1,5 billion a year for poverty relief programmes. If devaluation is faster than expected, the cost of the arms package will rise even higher.

On the expenditure side, programmes the People's Budget sees as critical for more effective social spending have not been introduced.

The budget does not move toward introduction of the Basic Income Grant. In the absence of other forms of income support, the budgeted increase in the old-age pension and the child support grant show real insensitivity to the needs of the poor. The old-age pension has lost 20 per cent of its value since 1994. A commitment to keeping it at its current in real terms, then, does not go far. The increase of 10 per cent in the child support grant returns it to 1999 level in real terms -- but the rand increase is just R10. Even for very poor families, enough money to buy four loaves of bread a month will not go far.

The budget does not spell out the global budget for HIV. What is clear is that government still lacks a coherent, inclusive strategy for treatment and prevention. Above all, South Africa must make a commitment to providing medication in the context of treatment strategies for STDs, opportunistic infections and HIV itself. As the People's Budget points out, an effective approach must ensure provision of anti-retrovirals for expectant mothers and other people with HIV as well as more effective measures to prevent new infections.

In terms of spending on infrastructure, there have been massive cuts in the past few years. The cholera outbreak points to the immense social and economic costs that resulted. Although the budget promises an overall increase in this area, it still expects a cut in community-based water and sanitation. Spending on land reform is also expected to decline.

More fundamentally, the budget does not propose the re-orientation of infrastructure expenditure demanded by the People's Budget. That requires both higher levels of service and better co-ordination to ensure real rural and urban development. The privatisation of infrastructure provision makes that repositioning much more difficult.

A particular concern arises around the provision of electricity. The budget includes an effective 40-per-cent cut in the budget for electrification, although about a third of South Africans still do not have electricity. Furthermore, the model of electricity privatisation proposed by government, and repeated in the Budget Review, is associated with an end to cross-subsidisation of households by industry. This move will raise the cost of electricity to families by over 20 per cent. The increase in tariffs and the slow-down in electrification effectively cancels out the benefits from free lifeline electricity as well as the cut in VAT on paraffin.

More generally, the budget does not give local government the funds needed for free basic services to all, despite government's commitments to this effect. At 1 per cent of the budget, the increased equitable share for local government remains inadequate to translate the election promise into reality, especially for poor municipalities. To achieve this goal, government must develop a targeted national subsidy.

Finally, continued expenditure on debt servicing undermines national social and economic objectives, and aggravates income inequalities. The People's Budget will explore ways to reduce this burden in the future without limiting spending on government programmes. A particular concern is that much of this debt was incurred before 1994 to support apartheid.

It is critical that the process of developing budgets be amended to ensure that they better reflect the interests of the majority of our people. A key step to that end is to ensure that legislation makes it possible for Parliament to amend budgets, as the Constitution provides.

The People's Budget will continue to work for the re-orientation of government programmes and spending to fight poverty, create quality jobs, and ensure sustainable development. In the coming year, we will embark on a broad-based campaign among our membership to build capacity for engagement and moiblisation to achieve these aims.