COSATU's response to the Medium Term Budget Policy Statement
The Congress of South African Trade Unions has noted the first important policy statement by the new Minister of Finance, Comrade Nhlanhla Nene - the Medium-Term Budget Policy Statement (MTBPS).
Despite government's repeated public commitments to radical economic transformation, the Minister has delivered the most conservative budget statement in recent memory. In the last couple of years government has been hinting at fiscal cutbacks, through the use of the euphemism of ‘fiscal consolidation'. Minister Nene has now delivered a full-on austerity 3-year budget framework at a time when we desperately need economic growth, productive investment and employment creation.
It does not suggest that the government has fully appreciated the scale of the crisis of unemployment, poverty and inequality, nor that the Minister has broken from the ultra-cautious, orthodox capitalist policies of his predecessors, or that he is fully in tune with the bold, developmental policies promised in the ANC election manifesto and the ANC Conference commitment to the Second Phase of the Transition.
Economic Growth Forecasts:
COSATU is concerned that while his revised estimate for economic growth for 2014 has fallen to as low as 1.4%, the fiscal policy framework announced by the Minister will kill any prospects of an economic recovery. While the Minister wants to boost growth upwards towards the medium-term target of 5%, the budget framework provides a cast-iron guarantee that this will not happen.
The massive reduction in the budget deficit from 4.1% in 2014 to 2.5% by 2017 is achieved through real spending cuts which can only cause the economy to further stagnate. The extent of the cut is seen in the MTBPS:
The decline in ‘real growth' of spending to 1.3% in 2015 (from 10.8% in 2009), is lower than the level of population growth, and therefore a real cut in spending, at a time when we have a desperate need to stimulate our economy, deliver services in underserviced areas, and invest in employment creation. This is a disaster! We are following European/IMF austerity policies, which have only plunged Europe deeper into crisis, whereas we should be following the US stimulus approach which is leading to recovery of their economy.
These cutbacks are even more drastic than foreseen in last year's MTBPS which projected the growth in real spending for 2015 as 2.1%- more than 50% higher than what is contained in the 2014 MTBPS. The table below comes from the 2013 MTBPS:
Government Expenditure Savings vs Austerity cutbacks:
We need to distinguish between legitimate savings from eliminating wasteful expenditure, and austerity cutbacks. Savings of the former by national departments of R555 million in travel, R240 million in advertising and communications, R370 million in consultants and R150 million in venues and catering, while welcome, are a drop in the ocean. This is against the fact that the MTBPS lowers the ‘expenditure ceiling' by R25 billion over the next two years.
The elimination of luxury spending is not where the real cutbacks are taking place - they are coming from an expenditure cap on critical areas of delivery, cutbacks in personnel, etc. We deal with this elsewhere in our statement.
Having said this, further savings could be made regarding millions of rands of wasteful expenditure which still occurs on a daily basis, such as the millions spent on the President's State of the Nation Address, Premiers' State of the Provinces Addresses and more recently Mayors' State of the Municipalities Addresses etc.
Provinces and Municipalities must also be required to achieve such savings, by, for example, replacing consultants with capable permanent civil servants who will provide the same if not better services at a lower cost to the state.
Other glaring examples of wasteful expenditure that need to be tackled include last week's Sunday Times exposure of R3 billion spent by the State Security Agency over the course of 3 years to buy cars, rent warehouses to store them, employ friends and relatives under the guise of employing agents and informants to protect genuine state interests.
The R35 billion in wasteful expenditure by the Department of Public Works is another glaring crisis.
Cutbacks and Austerity:
Whilst government efforts to curtail wasteful expenditure and spend more efficiently are to be welcomed, rapidly cutting government expenditure, including badly needed economic investment, and social expenditure has disastrous social and economic consequences. Austerity will further collapse economic growth or simply shift the burden to the already vulnerable - and precisely do what the Minister stated he would avoid - "balance the budget on the backs of the poor".
The federation strongly opposes cancelling of funded vacancies. These are different from unfunded vacancies or long-term unfilled funded vacancies. They were created in line with the ANC's manifesto's objectives of expanding badly-needed education, health, police and other critical social services. Government must indicate how many doctors, nurses, police, teachers and other posts it wants to cut, and motivate on what basis this needs to be done. This is a process that has to be engaged with through the bargaining councils and with unions and not simply left to a Treasury-driven internal bureaucratic process.
Even government's Public Service Commission has rung the alarm bell about unfilled posts, and the urgency of filling these, according to the City Press [8 October 2014]: "The government must quickly fill vacancies in departments to enhance service delivery, the Public Service Commission has said... (unfilled) critical posts impact negatively on service delivery,' the PSC's Gauteng commissioner Michael Seloane said in Boksburg on the East Rand today. "In the 2013-2014 financial year, 50% of the departments had more than a 20% vacancy rate which is far beyond the acceptable minimum of 10% or below. Gauteng government departments with vacancies included health, with 8 337 vacant posts, and education with 6 959."
Public Servants Wage Bill:
COSATU rejects the notion that civil servants' wages are to blame for government's expenditure difficulties. Civil servants, nurses, teachers, police officers, prison warders, doctors, civil engineers, soldiers, etc. provide a critical service that protects, empowers and benefits the entire nation. Often they are badly underpaid. There are glaring wage inequalities between what senior officials and politicians make and what the average nurse, teacher and police officer take home.
In fact, given the extent to which many schools, hospitals and clinics and police stations are under-resourced and staffed, there is a critical need to ensure that all government vacancies are filled urgently and this must be negotiated with the public service unions.
Yet whilst these public servants, who work under often horrendous conditions, are blamed for increased spending we have seen the Cabinet grow with each new administration. We have seen Ministers and Premiers ignore the Minister of Finance's correct call for restraint on the cost and number of luxury cars bought for the Ministers. We have seen excessive wastage on international and local travel by some Ministers and officials.
State-Owned Enterprises:
COSATU will vigorously oppose any further attempts at privatisation, outsourcing, agencification etc. Government needs to state which "non-strategic state assets" it plans to sell, why, when and how. Any moves which prevent the creation of a capacitated developmental state as well as those which allow private companies to benefit from the stripping of state assets cannot be supported.
Government's commitment to scrutinise SOEs' expenditure is welcome, but we must distinguish between wasteful spending, and the need for SOEs and DFIs to be properly capitalised so that they can execute their developmental mandate. One requires spending cutbacks and controls, and the other requires greater injections of capital from the fiscus. We need an appropriate combination of both these pillars.
The root causes of over-spending in SOEs must be dealt with, e.g. gross managerial inefficiency, corruption, external factors (e.g. rising fuel prices for SAA). Eskom and municipalities cannot simply be allowed to tax their way out of their problems. The massive far-above-inflation increases that Eskom has imposed upon the heavily indebted families cannot be justified. Efforts to do likewise with water tariffs by municipalities cannot also be accepted.
At the same time SOEs and DFIs cannot perform their developmental mandate if they continue to be commercialised and operate in the same way as private-sector, profit-driven organisations. Part of this is that there has to be adequate capitalisation of state entities to perform their role. We can learn from Brazil where massive capitalisation of their development bank has driven their economic development. But the MTBPS only foresees a cutting back of this role.
Fiscal Framework:
The proposed allocation of R15 and R45 billion for unallocated reserves in 2016 and 2017 cannot be supported whilst at the same time Treasury wants to cancel funded vacancies, reduce public wages and infrastructure and social expenditure. A far lower allocation can be made for contingency funds as was done previously.
Whilst various fiscal targets may be important, they cannot be pursued at the expense of the most important target - reducing the 35% unemployment level.
Expenditure Priorities and Division of Revenue:
Government plans to keep social services expenditure at 42%. This will obviously have a greater impact if the spending envelope is increased. The federation supports the objectives of improving education, health, security, decent work, skills, infrastructure, housing, food security, the public service and local government, the environment and social security. But the devil is in the detail. For example the MTBPS still does not project an allocation to fund the NHI - a critical programme which Treasury has opposed for many years.
COSATU supports the objectives of creating 11 million jobs by 2030 but does not believe that the economic strategy set out by the NDP will allow this to happen.
Increases in Revenue:
Whilst increases in revenue and taxation will only be dealt with in the 2015/16 Budget, any taxation increases should not be done at the expense of the poor, the working and the middle classes, who cannot afford it, after years of financial hardships caused by the global economic downturn. Any tax increases should be levied from the rich and companies as spelled out in COSATU's submission to the Davis Commission.
Efforts should also aim to ensure that increased tax revenues are achieved by reducing the massive amounts of revenue lost annually due to tax evasion by large numbers of the wealthy as well as companies which hide their profits in off-shore accounts.
Corruption:
Whilst welcoming the 54 convictions which have led to R106.8 million in assets being forfeited or frozen, this is too little, given the massive levels of corruption that have been announced by the Auditor-General. Much more must be done by government to tackle corruption.
COSATU welcomes government's intention to establish a plan for the Chief Procurement Officer to ensure that government procurement contracts are cost-effective and competitive and that the state ceases to be a trough for the private sector to loot. However this must be separated from the issue of government commitment to a massive ‘procure local' campaign, which Treasury has historically opposed. We will watch the procurement review closely to ensure that it doesn't water down the commitment to procure at least 75% of goods locally.
Medium Term Strategic Framework Interventions:
COSATU welcomes government's commitment to boost energy supply, expand rail and port capacity and to explore offshore oil and gas resources, but this must be done with the objective of reindustrialising the local economy and not simply outsourcing such work to foreign companies.
Government needs to unpack what it means by "improving dispute-settlement mechanisms in labour relations". This must not be an attempt to reduce workers' constitutional and hard-won right to strike or the capacity of unions, which many in the opposition and some in government are calling for. Government must take forward the manifesto commitment to extend and consolidate collective bargaining in all sectors of the economy, and urgently implement a national minimum wage.
The key causes of "labour unrest" are the massive levels of unemployment, poverty and inequality. Government must tackle those ticking time bombs if it wants to achieve greater labour market stability. COSATU will resist any attempts to further weaken workers' real wages and labour rights.
Expanded Public and Community Works Programmes:
We appreciate that for those who work on the EPWP and CWP, these programmes provide some form of income for people who otherwise may have had none. However they are not the solution to the 35% unemployment crisis. We need to provide permanent decent work for all.
There are growing alarming trends of municipalities and provincial departments in effect outsourcing what should be permanent, decent work, e.g. cleaning and maintaining of roads and parks, to EPWP and CWP, as these cost less than paying a decent wage.
The Department of Public Works' own reports confirm that many of these EPWP and CWP workers earn below the minimum sectoral wage set by the Minister of Labour and there is little evidence of skills and training being provided to these workers.
Employment Tax Incentives:
COSATU reiterates its condemnation of the Employment Tax Incentives programme. It has in effect become a straight subsidy for labour brokers.
Treasury does not know how many of the 209 000 claimants are for new or existing jobs. It does not know how many older workers have been displaced. It confirmed at NEDLAC that it has no monitoring or evaluation capacity for this. It does not even know if it's actually 209 000 claimants due to tax confidentiality laws. All it has done is to divide the total claims by the maximum amount claimable per individual.
What has been confirmed is that the majority of claims have been submitted by labour brokers who employ workers temporarily under the most horrendous conditions with few labour rights.
To date the Department of Trade and Industry has not designated any sectoral or special economic zones to benefit under this wage subsidy.
COSATU repeats its demand that this labour broker subsidy be ended and better ways be found to create decent permanent work.
Manufacturing, Agriculture, Beneficiation and Industrialisation:
More needs to be done to support the growth of the manufacturing sector and the reindustrialisation of the economy and to promote and protect the agricultural sector in the face of an unequal global economic sector where the US, EU and other key trade partners' agricultural sectors are heavily subsidised and protected.
The federation welcomes the growth of renewable energy levels in the country over the past few years, but much more can still be done. We have seen worrying reports about local renewable energy suppliers going out of business due to cheap imports.
Government should look at how China has rapidly moved from a key polluter to a leading renewable energy producer since 2008 and the Scandinavian countries where wind, hydro and solar energy are now overtaking coal.
Worryingly and amazingly the MTBPS is silent on the urgent need to expand beneficiation in the mining sector!
Whilst the MTBPS goes into the details of fluorescent light bulbs, it's completely silent on nuclear energy. Surely it should have taken the nation into its confidence with regards to its long term nuclear energy plans!
COSATU does not believe nuclear energy is a safe or cost effective means to produce energy. The recent experience of Japan confirms these massive dangers. The trend set by Germany of moving away from nuclear energy towards renewables is one we should look at.
Transport:
Government's efforts to rapidly expand our rail capacity are to be welcomed. However alarm bells are already ringing around media reports that local beneficiation and procurement policies and requirements are not being enforced.
The MTBPS is worryingly silent on what other public transport plans are in place for the millions of citizens who will not have access to trains.
It is silent on the entire E-Tolls fiasco in Gauteng which the overwhelming majority of residents have rejected. It's silent on its plans to expand it to other provinces including Durban and Cape Town where already the ANC KZN Provincial Executive Committee, the City of Cape Town and the Western Cape Provincial Government have publicly opposed it.
The entire E-Tolls fiasco in Gauteng is an indictment of what happens when profit is allowed to determine government policy and where the views of the public are ignored. COSATU remains opposed to this brash implementation of the user pay principle and to the privatisation of what was an already paid-for strategic public good.
Basic Education:
The target of meeting school infrastructure norms and standards by 2016 is welcome. COSATU hopes that this means that from 1st January 2016, that mud schools will finally be a thing of the past.
However it is worrying that the MTBPS is silent on the personnel and text book crisis in the Department of Basic Education. Thousands of teachers had to take the Department to court in order to ensure that their salaries were paid. The Department is yet to convince the nation that it can ensure that all learners will receive their text books on time in all provinces each year.
Post-School Education and Training:
The commitment to provide funding for an additional 116 000 tertiary students by 2016 is strongly welcomed.
Health:
The continuous expansion of the roll-out of Anti-retrovirals is welcomed, but the continuing silence on funding models and an implementation date for the National Health Insurance system is unacceptable.
Social Protection:
The continuous growth of social grants recipients is welcomed, as is also the commitment to discussions on comprehensive social security reform, a major, if belated, achievement. However this will require open and meaningful engagements, including on income transfers for the unemployed, and the contentious issue of retirement funds.
Defence, Public Order and Safety:
The federation questions whether the transfer of the administration of the judiciary to the Office of the Chief Justice will be sufficient to address the backlogs crisis in the courts.
The complete silence on the recent Sunday Times exposure of a possible R3 billion corruption scandal at the State Security Agency is worrying.
Economic Infrastructure:
COSATU welcomes the commitments to fund the Moloto Road Project and to fund water infrastructure. However the shift of funds from solar energy is not welcomed. Capacity problems must be rather dealt with as opposed to reducing expenditure in such an important programme.
Housing and Social Infrastructure:
The commitment to review the housing model is strongly welcomed. The current RDP houses are not a long-term solution.
Industrial Development, Trade and Innovation:
The commitment towards creating decent employment is welcomed. However the belief that this can be done through the Employment Tax Incentives is strongly condemned.
Employment, Labour Affairs and Social Security:
The federation welcomes the planned 30% increase in workplace inspections by the Department of Labour but this is still insufficient as it is from a woefully low base.
Rural Development and Land Reform:
COSATU questions whether this will be sufficient to speedily and justly settle long outstanding claims?
Public Procurement:
Plans to enable transparency and public monitoring and complaints with regards to tenders and government procurement are strongly welcomed.
Funding Local Government:
COSATU welcomes the planned review of sustainable equitable funding for local government. Municipalities' continuous under-expenditure of their infrastructure funds is unacceptable, more so given the many service delivery crises residents face on a daily basis.
Greater attention is needed to the water, roads and other infrastructure crises facing many rural municipalities.
Statement issued by Patrick Craven, COSATU national spokesperson, October 23 2014
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