Peoples Budget Coalition Statement on the National Budget speech, February 17 2010

The People's Budget Coalition (PBC) welcomes the Finance Minister's National Budget speech (see here). We warmly embrace his view that there is a need for a common vision and "common purpose so that we can use all our talents, skills and resources to tackle our economic and social challenges". The speech sets out a brilliant political vision with which we broadly agree.

We welcome the evidence that the minister, following the President last week, is guided by the five key priorities as identified in the ANC manifesto, and agreed to in the Alliance Economic Summit which are:

• Creation of decent work and sustainable livelihoods
• Education
• Health
• Rural development, food security and land reform
• The fight against crime and corruption.

We are particularly pleased that Comrade Gordhan clearly recognises the transformation challenge posed by high unemployment, poverty and income inequality, and the need to pursue policies that will create decent work.

We appreciate the Minister's assurance that he agrees with COSATU's demand that "it is essential that we urgently adopt a completely new growth path to transform our economy into one based on labour-intensive industry and one that meets the basic needs of our people".

Much of the speech comprises proposals to address this fundamental challenge. But this vision cannot be realized without simultaneous fundamental shifts from failed macro-economic policies, such as inflation targeting, which contributed to the perpetuation of the very inequities that the Minister refers to as "inequitable growth not being sustainable for broad based development and growth".

When, in the medium term budget speech in 2009, the Minister called for open-mindedness, we had hoped that this would translate into concrete policy shifts.  We are disappointed.

We are therefore very disappointed that the Minister failed to move an inch from the failed monetary policies of the past administration, despite claiming to have learned lessons from the crisis.  The statement that the mandate of the Reserve Bank will be made "flexible", presupposes that the current practice of the Reserve Bank has not been flexible.  But in fact it has always claimed that it is flexible. The literature on inflation targeting also emphasizes that inflation-targeting central banks are, in practice, flexible.

There is therefore nothing different that the Minister says that the Reserve Bank has not said in the past.

We had expected that monetary policy will be changed to target employment directly, as a primary focus of policy, as pointed in the Election Manifesto of the ANC and in the various meetings of the Alliance.  This deviation by the Minister is testimony to the fact that without mass power, the leaders we have elected have a tendency to be sucked in by the power of finance capital.  The reasoning behind retaining inflation targeting is based on very narrow ground.

According the Minister's logic, the fact that the Reserve Bank's inflation target is forecast-based allows space for monetary policy to react to other variables such as employment, the exchange rate and other macroeconomic imperatives. The evidence he cites is the instance where inflation has remained outside the target band for some period of time.

This cannot be further from the truth.  Firstly, inflation-forecast targeting only allows for gradual adjustment of interest rates in order not to bring about instability. This does not mean that the Reserve Bank is thereby broad in its approach.  The key issue that the Minister has failed to address is the fact that the Manifesto clearly prescribes that employment should be the primary focus, whilst inflation targeting makes price stability the primary focus.  In our view, and true to the spirit of the Polokwane and Alliance resolutions on macroeconomic policies, the new growth path requires a demotion of price stability and the elevation of employment as the target for both monetary and fiscal policies.

Secondly, the fact that the inflation rate has been outside the target band for some time does not in any way signal flexibility. On the contrary, it may signal the fact that the Reserve Bank failed to control inflation in a manner that it has committed itself to do.  We therefore reject the reasoning of the Minister on the basis that it is based on precarious empirical foundations.

We will therefore escalate our struggle for the scrapping of inflation targeting, because we are of the view that the persistently high unemployment rate, strong exchange rate, and de-industrialization of our economy are due to the policy of high interest rates, of which inflation targeting is a form.  Inflation targeting tends to maintain high interest rates, especially because our economy is vulnerable to supply-side shocks such as food price and energy price increases.  As we approach the upcoming Alliance meeting, to strengthen the Alliance so that it is in a position to ensure that the decisions it takes are carried out to the letter inside the state apparatus.

On youth employment

The PBS will be seeking further clarity on the proposed subsidy to employers that will lower the cost of hiring young people without work experience. While we note that such employees will be "subject to minimum labour standards", we are still concerned that this scheme could lead to a two-tier labour market.

On Tax Relief

The Minister has noted the massive wealth and income inequality that characterizes our economy.  In this connection, he has put forward some tax relief proposals. In the light of gross income inequalities in our country resulting from the stagnation of wages in the past 10 years as opposed to the meteoric rise of executive management salaries, the PBC is proposing a revision of the R500 000 threshold (of 45% for all individuals earning above R500 000), noting that the number of people earning above 1 million has increased. We are proposing this redistributive measure to the highest income quintiles.

On Corruption

The PBC welcomes the much tougher line taken by the minister against corruption and will give its full support to the proposed measures, including "target lifestyle audits", in order to root out this scourge.

On the Competition Authority proposal on Banking

The PBC welcomes the Ministers announcement on recommendations of the Banking Enquiry Panel of the Competition Commission. We have longed argued the need to allocate sufficient resources to ensure the Competition Commission carries out its mandate, in particular where clear price collusion is evident in critical sectors of our economy.

On Money Bills Amendment

The PBC has always argued for a participatory budget process; include the empowerment of parliament to make amend and make decisions on budgeting. COSATU, South African Council of Churches and the NGO network will immediately participate in parliamentary process that allows for genuine, robust and open debate on budget proposal tabled.

The People's Budget Campaign (PBC) is a civil society coalition comprising of 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 spending of revenue by the National Treasury and argued for a participatory budget process.

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