People's Budget Coalition response to the Medium-term Budget statement

The People's Budget Coalition (PBC) is a civil society coalition comprising the Congress of South African Trade Unions (COSATU), the South African Council of Churches (SACC) and the South African Non-Governmental Organisation Coalition (SANGOCO). This coalition has for the past ten years tabled proposals on the budget and a participatory budget process.

In addition, it has played a significant role in monitoring and being vigilant in ensuring that real expenditure by government does not decline and shift from those who need improved social security support, decent work, improved education outcomes, better access to health care through a National Health Insurance scheme and rural development, and not projects that do not provide any benefit to ordinary South Africans.

The PBC welcomes the progress made in making the budget process more accessible in terms of public understanding and will continue to make its own input.  However, real input and influence into the process is still insufficient and there is still a long way to go before the official budget can be regarded as a People's Budget which will be a genuine product of a thoroughgoing process of consultation and engagement with key stakeholders.

The emphasis on stringent measures and penalties to address fraud and corruption, especially in the procurement process, and to increase transparency, contained in the statement must be commended and the PBC partners will work with government to help root out this pernicious practice.

Notwithstanding these positive characteristics the PBC is largely disappointed with the ‘business as usual' approach and general content of the statement. In the PBC's view the global economic crisis has not ended, and South Africa continues to be subjected to its effects, which worsened the historically massive rates of structural poverty and unemployment.

The statement contains a muddled approach to the volatility of capital markets, and offers no solution to the continued strengthening of the currency.

We note that the extent to which we have been afforded some minimal protection from the economic crisis if any, has largely been due to the remaining exchange control regulations.

Notwithstanding this, we have serious concerns about proposals to further relax exchange control regulations, including allowing both companies and individuals to freely move capital offshore. This will expose our country to more vulnerability during a time when we need more capital to grow the economy and create jobs. While instruments such as foreign reserve purchases and swap interventions are welcome, they will not be adequate to address speculative investments and capital flight.

While we cautiously welcome the emphasis on increased regulation and supervision of the banking sector and will await further details, we will continue to argue for the introduction of a Financial Transactions Tax (FTT) and regulations that are geared towards a developmental agenda.

Ironically, the Minister's speech in comparing South Africa's so-called ‘relatively smooth' emergence from the recession to that of developed countries, and even BRIC (Brazil, Russia, India and China) countries, misses the point that our levels of unemployment, poverty and inequality were far worse than those countries even before the recession. The Minister is not comparing apples with apples. In actual fact, the manifestations of the economic crisis are still very much with us and the ‘relatively smooth' exit from the recession has done nothing to improve the lives of the unemployed and the poor citizens.

Despite these trends the statement seems to suggest a business as usual approach to budget deficits which decline substantially over the medium term with low tax to GDP ratios averaging around 25%, which is oriented away from redistribution. We also note with concern increasing emphasis on the role of VAT proportionately in relation to tax revenue despite the regressive adverse impact this has on poor people.

While we are strongly calling for the introduction of NHI, and whilst we know this may involve an increase of tax, we would resist any attempt to finance it through VAT which is a regressive tax that will affect the poor more than the rich. NHI needs to be financed through a progressive tax model.

We are concerned about the emphasis on private investment and competition in the sectors of electricity, transport and communication, which is reflected in proposals to privatise the delivery of much-needed basic social services. This is contradictory to a developmental state approach. The increase in tariffs and user charges in electricity will add a further burden on the already overburdened poor communities.

While the statement emphasises the creation of so-called employment opportunities, there is no emphasis, directly or indirectly, on decent work. This is further reflected by the emphasis on privatisation and public-private partnerships, including in public health. The proposed introduction of the youth wage subsidy will lead to further fragmentation of our labour market and will ultimately not deliver decent work opportunities for the most vulnerable in the labour market, i.e. the youth. This will perpetuate inter-generational poverty.

Overall, there was no sign of a shift to the kind of radically pro-poor development programme that is consistent with the five priorities as per the electoral mandate of the government.

This conservative approach, which the government has largely followed for almost 14 years since 1996, will not address the ticking bomb of unemployment, poverty and deepening inequalities. We call for a review of this policy stance if government is to succeed to take us into a new growth path. Otherwise the Industrial Action Plan 2 will not take off the ground, as it will be a prisoner of a conservative macroeconomic stance the government has pursued for many years. No amount of decoration with nice rhetoric will change the reality that government sees no crisis whilst our country is facing a catastrophe.

Statement issued by the People's Budget Coalition, October 28 2010

Click here to sign up to receive our free daily headline email newsletter