COSATU's response to MTBPS

The Congress of South African Trade Unions notes the Medium-Term Budget Policy Statement by the Minister of Finance. It sets a forward-looking framework over the next 3 years and makes indications about government priorities.

Our view is that all such Statements must be measured against the 5 priorities of the current administration.

Creation of decent work and sustainable livelihoods

• Improving the quality of education
• Improving access to quality healthcare
• Promoting rural development, food security and land reform
• Fighting crime and corruption

In order to effectively achieve these, the 52nd Conference of the ANC called for an effective strategy of redistribution to provide a context for growth to take place. Such a strategy should find expression in a macroeconomic policy framework that puts decent work at the centre. Fiscal and monetary policy mandates need to actively promote creation of decent employment, economic growth, broad-based industrialisation, reduced income inequality and other developmental imperatives.

Generally, there is a disconnect between policies such as IPAP 2 and the NGP and the MTBPS. Although the NGP is mentioned, no concrete measures are outlined to support its key jobs drivers, not least of which is manufacturing. 

The Statement mentions the 5 priorities only at the level of generalities, without providing concrete measures to take them forward. It is littered with attractive sign-posts that reflect the Manifesto, but these are not commensurate with the demands of the Manifesto. 

In addition, the Statement suggests that public sector wages constrain government from delivering basic services and infrastructure. This is problematic, especially since estimates from the Quarterly Employment Statistics indicate that real wages have declined by 6% over the past two and a half years. In 2010 Q4 the average monthly wage was R3 336; it is now R3 175.

The average inflation rate that is faced by workers is 10%, and most wage settlements in the public sector were between 6% and 8%. The veiled attack on public sector workers is therefore unwarranted. Whatever workers have gained continues to be eroded by job losses that stem from constrained real wage growth. We cannot call for reduction of inequality on the one hand, and enforce a real wage freeze on the other hand.

2. The macro-economic policy

The Statement does not represent any shift but continues on the old path. It projects inflation to be 5.5%. Nominal tax collections are said to grow by 7.1%, which in real terms amounts to 1.5%. Government spending is expected to grow by 2.3% in real terms. This represents a 0.8% increase in spending relative to taxes.

Government spending will be less than projected GDP growth. This means that government spending relative to GDP will decline by 0.7% over the next 3 years. Furthermore, the borrowing requirement will decline from 8% to 5% over the next 3 years, driven mainly by fiscal consolidation, which will reduce the budget deficit from 5.5% to 3.3%. 

This leads us to characterise this MTBPS as a conservative macroeconomic framework predicated on a neo-liberal paradigm. This is because this spending does not prioritise job creation and retention, when the country still suffers from more than 1 million job losses over the crisis period. 

In addition, over the past two and a half years, workers have lost in excess of R42 billion worth of income. Yet, the Statement only mentions social security in passing. Relative to the depth of the South African crisis, the spending in this MTBPS is very modest, virtually stagnant in real terms. This effectively presents a surplus budget; hence it creates a "policy reserve".

The fiscal framework does not mention anything about tax policy over the coming 3 years. For example, a key to lever to expand aggregate demand during this crisis period is a progressive tax system that encourages broad-based demand to combat the effects of the crisis on the livelihoods of the poor and support industries through demand support.

The Statement projects a deficit of 5.5% next year, which then declines to 3.3%. However, this conservative stance is inconsistent with the scale of job losses that the economy has experienced. We would have expected a macroeconomic policy framework that places job creation at the centre to have adopted a targeted, expansionary fiscal stance supported by other macro-policy interventions such as management of exchange rate appreciations.

While the Statement mentions the conundrum of the exchange rate, it does not do more than that. In the NGP, it was mentioned that monetary policy will be "loose" and more will be done to ensure a competitive currency so that jobs are protected. We do not think that the current level of the real exchange rate helps to adjust the economy in a manner that preserves jobs and enhances broad-based industrialisation.

At a macro-level, the current account deficit was 1% of GDP in 2010 Q4, when the growth rate was 3.6%. However, in 2011 Q2 the growth rate slowed down to 3.2% and the current account deficit widened to 3.3% of GDP. The main driver of this deficit is the sharp appreciation of the real exchange rate. The real exchange rate has strengthened by more than 40% since the beginning of 2009.

The macroeconomic policy framework, which is basically a "wait and see" approach, is not active in supporting job-creation and broad-based industrialization. We would have expected the policy Statement to talk about interventions such as:

• Preventing the appreciation of the exchange rate so as to support domestic manufacturing. This will include the introduction of financial transactions taxes on short-term capital flows and on domestic financial markets
• Ensuring that adequate and affordable credit is supplied to industries
• A financial activities tax to redistribute resources towards industrial sectors
• Progress report on the formation of the state bank, the consolidation of development finance institutions and their mandates
• Introduction of a tax on luxury items and a tax on the super-rich, to expand tax collections to finance public infrastructure
• Setting up clear local procurement guidelines and enforcement, combating import fronting and encouraging productive BEE
• A shift in macroeconomic policy towards greater employment focus, and the use of tools to ensure that targeted sectors as outlined in IPAP 2 and the New Growth Path receive adequate support
• Elimination of tenders and the strengthening of the public sector to deliver quality and affordable infrastructure and basic services

Sadly, South Africa has missed yet another opportunity to change course to a new growth path.

3. Creation of Decent Work

The Statement says over the next 5 to 10 years South Africans must focus on economic restructuring to create more jobs, spread opportunities and reduce inequalities. The Statement commits R25 billion over the next 6 years to boost industrial development, assist enterprises and accelerate job creation. This amounts to R4.2bn per annum. 

The Statement provides "support for job creation, training and community works". Our understanding is that training should occur through NSDS III, which the Statement does not mention. The MTBPS should have clarified the vehicles and mechanisms through which the training it proposes will be realised.

Overall, while the Statement talks about economic restructuring, and the fact that manufacturing is held back by rising domestic costs and weak external demand, it does not specify the role of macroeconomic policy in supporting IPAP 2. Whilst recognising the volatility of the currency, the statement says nothing about what it will do about it. Furthermore, whilst it is true that common ground is required to revitalise manufacturing, it is also true that the current macroeconomic policy is not supportive. 

It allows for unbridled operation of market forces in determining the exchange rate; it fails to come up with measures to regulate the flow of credit to productive sectors; it does not put forward local procurement to support broad-based industrialization. Whilst it mentions preferential procurement, it does not mention the need to combat import-fronting, etc. In short the Statement does not provide concrete support for IPAP 2 and the NGP.

In relation to infrastructure, spending is 7.8% of GDP in the current year, and is estimated to be R802bn over the next 3 years. This will increase by 4% per annum in real terms. This is a promising figure, because it means that infrastructure investment will grow above the growth rate of the economy in the very short term. This is better than other expenditure items, and reflects the bias of the Statement.

However, the challenge that the Statement fails to address is infrastructure delivery mechanisms. Over the years, we have experienced chronic under-spending by departments. With the Public Works Department in shambles, we are sceptical about the effectiveness of this spending. The MTBPS should have put forward ways to build internal capacity to directly deliver basic services and public infrastructure; there is a need to cut tenders out.

Whilst the Statement mentions the need to increase investment in mining, it does not mention beneficiation as the cornerstone to building downstream industries. In addition the infrastructure spending that is mentioned in the document is not linked to local industrial development through interventions such as local procurement.

4. Education

The Statement seeks to increase education funding from R191bn to R232bn over the next 3 years, a 14% increase, which per annum amounts to 4.7%. In real terms education spending will increase by 1.6% per year over the next 3 years. 

The Department of Basic Education has a 10-Point Plan. Among other issues, it seeks to address backlogs in school infrastructure, curriculum development, and improving the quality of teaching and learning. 

Backlogs in Basic Education include the fact that 93% of schools have no libraries or libraries are not stocked, 42% of schools depend on boreholes or rainwater or have no access to water. 61% of schools have no arrangement for disposal of sewage, 21% of schools have no toilets on site or have more than 50 learners per toilet; 62% of schools have a learner educator ratio that exceeds 30; 81% of schools have no computers or more than 100 learners share a computer, etc.

If class sizes are to be equated to those in Brazil and if we are to reduce the learner-educator ratio to 20, from the average of 30, at least 210 000 more educators would have to be trained. This does not include the need to build more schools, address equipment and furniture shortages, expand and re-capacitate colleges and their associated support staff.

The extension of computer laboratories and libraries will create in excess of 80 000 direct permanent jobs for librarians and computer teachers. This does not take into account jobs created for maintenance of computers, and the fact that many schools have to be wired on the internet and must have TVs.

The MTBPS should have laid the foundation to address these backlogs. It should have ensured that teacher colleges are re-opened and new ones built, not through tenders, but through internal state capacity. It should have ensured that it allocates resources so that these are directed where they are needed most, in schools. Teacher training institutes needs to be set up across the country to re-train teachers so as to improve the quality of teaching.

The Department of Higher Education and Training aims to expand the FET sector so that its intake per annum is 1 million by 2014. If this programme is to be a reality, it is estimated that we need 20 000 more lecturers. This means that the sector must increase its intake by 150 000 per annum, from its current 400 000. The number of lecturers must increase by 5000 per annum.

The MTBPS should have addressed these demands through its resource allocation. The re-opening of teacher colleges, nursing colleges, technical colleges, and the building of new institutions, including the two universities in the Northern Cape and Mpumalanga, needs to be expedited. 

This is important if we are to stem the tide of ill-equipped young people entering the labour market. Furthermore, and encouraged by the turnaround of NSFAS, more allocations will have to be made to ensure that no deserving young person is denied an opportunity to further their studies.

A 1.6% real increase will make a dent in expanding the FET sector by 150%, for example. Such inconsistencies in budget allocations and demands make us to be sceptical about the connection between the Budget Statements and the Manifesto commitments. The Manifesto commitment will remain a far-fetched deferred dream.

5. Health

The Statement mentions that health spending will increase by 7.4%, in real terms a 1.9% increase. This is worrying given the massive crisis we face in this area. There are staff shortages and non-availability of medicines; we need improved efficiency in the link between warehouses, hospitals and clinics. There are infrastructure backlogs, a need to extend physical infrastructure, including beds and linen, and inadequate systems: ICT, management and administrative support, availability of equipment: some provinces do not have equipment to treat certain conditions.

These challenges have generated the following negative outcomes: maternal mortality has increased from 81 to 600 (per 100,000) between 1997 and 2005. The MDG target is 38. Child mortality has been on the decline, but remains high at 68 (per 1000 live births), yet a comparable country, Brazil, has reduced this figure from 58 in 1990 to 22 in 2007. Under-regulation of the private health sector and over-concentration of resources in the health system remains a major problem, though even the private healthcare sector is facing serious challenges of efficiency.

The MTBPS was supposed to ensure that the Department of Health's 10-Point Plan, which was outlined in the 2010 Budget Review, is adequately resourced. The heart of this Plan is to transform the South African healthcare system, the centrepiece of which is the implementation of the National Health Insurance (NHI). The MTBPS was supposed to clarify the financing mechanism of the NHI and make the necessary budgetary allocations to phase in the system. The MTBPS should have begun to indicate how the health system will be transformed.

The role of community care workers as part of the public health system cannot be minimized. They need to be integrated into the public service. In order to decisively address the chronic problem of staff shortages, the state should lead the process of training of nurses and doctors and resist the incursion of the profit motive in the process. The nurse/patient ratio remains low; it must be increased from 4 per 1000 people to 8 per 1000 and the ratio of physicians to 1000 people to 1 over the short to medium term from the current 0.69. This will require at least 200 000 additional nurses and at least 15 500 additional physicians. This excludes the need to build additional clinics and hospitals.

The MTBPS should therefore have indicated how many nursing colleges have been re-opened, or will be re-opened. How will the increase in the number of physicians and associated professionals be funded? There needs to be an indication on the scale of infrastructure expansion in the public health system as a basis for phasing in the NHI. Lastly, a critical ingredient in the health system is the availability of medicines. A brief report on progress on the setting up of a state-pharmaceutical company to bring down the costs of medicines should have been provided. 

We do not believe that a 1.9% increase in healthcare spending puts us on a path to meet our promise contained in the Manifesto.

6. Rural development, food security and land reform

The Statement mentions the strengthening of local government in rural communities. This is to be welcomed, as it signals the prioritisation in line with the Manifesto commitment. We also welcome the prioritisation of water infrastructure, and to upgrade waste water treatment works in rural areas. The Statement further mentions the role of the Land Bank in supporting agriculture, thereby increasing the production of food. The intention to support small scale farmers is also a welcome move. The alignment of programmes between the Department of Rural Development and Land Reform, Agriculture, Water Affairs and Forestry is also a welcome move that begins to build institutional coherence when it comes to rural development and agriculture.

The Statement makes an important observation about the need to address backlogs in public service delivery in rural municipalities. This is important because it addresses the question of the rural-urban divide. In addition, the focus on rural development should go some way in easing in-migration into cities.

However the Statement decries the rise in food prices, without providing an indication of what government is going to do about this. The MTBPS should have proposed measures to limit speculation on essential food items in financial markets. Another factor that should have been factored into the statement are cost drivers faced by farmers, such as fertilizer, electricity, transport and water tariffs. In this context the renationalisation of SASOL becomes important. 

Furthermore, the Statement does not make mention of land redistribution, which lags far behind target.

7. Fight against crime and corruption

The MTBPS must address the resourcing of the police service, ensure adequate resources for institutions, especially community policing forums, provide conditions for the Criminal Justice Cluster to attract and retain highly skilled personnel in its departments to deal with, for example, fast-tracking of cases, sentencing of offenders, and adequate resourcing to minimize repeat offences.

Among interventions to deal with corruption is to impose stricter penalties to deter public servants from using state resources for their own interests. The creation of a naming and shaming list that is easily accessible to the public should be expedited. Dealing with corruption in the criminal justice system demands improving the capacity of the Independent Complaints Directorate, listing companies and individuals that have been found guilty of corruption, and instituting targeted lifestyle audits. 

But the most powerful way to deal with most of the corruption is to eliminate the use of tenders to deliver basic goods and services and to build the capacity of the state to directly deliver these and create jobs.

Issued by Patrick Craven, COSATU national spokesperson, October 25 2011

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