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CONTENTS
A budget for the marketsby Thami Ngqungwana The government has described the 2000/1 budget as a ’growth budget’, aimed at stimulating investment and creating a platform for accelerated economic performance. Key indicators are the reduction of the budget deficit to only 2,4%, the commitment to bring core inflation (inflation excluding interest costs) down from 7,7% to 3%6% by 2002, tax cuts for small businesses, reduction of marginal personal income tax rates and a further relaxation of exchange controls on residents. The biggest surprise was the introduction of a capital gains tax (CGT). The logic for the introduction of a CGT is not so much the additional revenue collected, but rather to improve the equity and integrity of the tax system. Currently, people at the higher end of the income scale have been able to structure and maneouver their income to evade tax, unlike lowerincome people who pay their taxes regularly. Personal income taxThe tax cuts have been relatively more favourable to higher earners. Government is assuming that they will kickstart economic growth. This is not always the case. No sooner had company tax been reduced from 35% to 30% then many larger firms announced massive retrenchments. Private sector investment remains low. Reaching the poor?In this current financial year, the government intends to spend R233,5 billion an 8,1% increase over last year and the first real increase since 1996. However, the reason for the increase is largely due to the 19% real increase in defence spending. Social spending, on the other hand, has declined from 57% to 55,8% of total noninterest spending. There has been no real increase in social grants. Child maintenance grants remain at R100. Rather than targeting three million children, as was originally intended, only one million are likely to be incorporated by 2003. This year’s budget allocations are:
The 2000/1 budget reaffirms government commitment to the promotion of the private sector. Behind this approach is the view that the private sector can deliver on economic and development needs more efficiently than the public sector. This marketled approach will not resolve the underlying challenges. For example, the vast infrastructural backlogs and poverty offer little prospects for profitmaking in rural areas, and will hardly attract private sector interest. Government needs to adopt a more flexible approach to fiscal policy, allowing the budget deficit to be increased to alleviate poverty and stimulate economic growth. It is also important that there is greater public participation in the budgetary process. This would ensure that the budget is more reflective of the aspirations of the majority, and can make meaningful improvements to the lives of the poor. Thami Ngqungwana is a researcher at Naledi. 
Cautions and opportunitiesby EbrahimKhalil Hassen The 2000/2001 budget provides both a cautionary tale and opportunities for trade unions. The budget ranks among the most significant steps the democratic government has taken. The policies it has put into place will, however, impact directly on union strategies. Public sector wagesThere has been a significant change in the way that salary increases for public sector workers are budgeted for. Previously, budgets for salary increases called the Improvements in Conditions of Service (ICS) vote were appropriated at central level. Once salary negotiations were concluded, this amount was distributed to provinces and departments. This year, the ’salary vote’ will be distributed immediately to provinces and departments. Government says that doing things in this way will improve budget comparisons, focus attention on personnel costs and enhance the role of government accounting officers. However, a number of questions remain unanswered. The Budget Review stresses that the Public Service Bargaining Chamber will remain the central forum for wage negotiations. However, the amount given to departments and provinces only covers inflationrelated salary adjustments. What will happen if the wages agreed in the Bargaining Chamber are significantly higher than amounts voted in the budget? For government, the problem is that budget estimates are not based on actual bargaining decisions. For the unions, it means a potential conflict between parliamentary decisions and bargaining decisions. Changing the bargaining season or concluding multiyear agreements could solve this problem. The unions also fear that the new arrangement could be a precursor to decentralised bargaining. The changes which have taken place have been made possible by the Public Finance Management Act. While the Act has noble intentions it aims to improve the transparency, accountability and management of public funds mechanisms need to be found to address labour’s fears. One way would be to include trade unions in the reference group which oversees the implementation of the Act. Cutting costsThe Budget Review is explicit on the need to reduce personnel spending and to divert these savings to social spending and economic infrastructure. It envisages a gradual decline in personnel spending over three years from the current 49,6% of the total budget to 48,4% by 2002/2003. During this period, personnel costs are set to grow by an average 5,2%. Inflation projections for the same period average 5%. These projections have significant implications for bargaining. The primary implication is the possible erosion of real wages. The projections will, however, be part of discussions on a wage policy. The unions are in an unenviable position. The primary reason for inadequate social spending is the setting of deficit targets. The smaller the deficit, the greater the pressure on public service wages. Yet, unions have no say in the setting of deficit targets. The unions will need to confront this issue during negotiations on the remuneration policy. Possibilities include restructuring the government pension fund, restructuring the promotions systems and more costeffective medical aid and housing schemes. However, a more participatory approach to budget decisionmaking is also needed. Inflation targetingA newer caution relates to inflation targeting. During the budget speech, the Minister of Finance announced a target band of 3%6%. Minister Manual also said that inflation targeting is not meant to set wages and prices, but rather to have a basis on which to compare the two. However, a trend towards lower inflation will probably lead to lower wage increases. The important question is whether real wages will be protected under inflation targeting. Ebrahim Kahlil Hassen is a researcher at Naledi.
Children and the budgetby Shaamela Cassim The Children’s Budget Project is a subproject of Idasa’s Budget Information Service. It is not a separate budget for children. Rather, it monitors government expenditure on children’s programmes in the social sectors education, health, welfare and criminal justice. Recent research undertaken by the Project found that:
Why focus on children?Children make up 44% of South Africa’s population. Six out of every ten children are likely to be poor. Children living in rural areas are more likely to be poor than those in urban areas. Children with insufficient income have a higher risk of disease, a poor quality of life and are exposed to higher degrees of child sexual abuse, rape, physical violence and child labour, including child prostitution and trafficking. The Child Labour Intersectoral Group (CLIG) estimates that 200 000 children between the ages of ten and 14 are working. This includes farm and domestic labour, prostitution and street vending. Children leave school primarily to support households where income generation is lacking. Budget 2000/2001Since the majority of children live in poor households, increased social spending would go some way towards alleviating their plight. This year’s budget will not move us closer to this goal, because: s Expenditure on social services will only grow by 6% in the current fiscal year. It will remain unchanged for 2001/2002 and decrease to 5% for 2002/2003. In real terms, this translates to 1% for the first two years, and no increase for 2002/2003. It would appear that the increase in social spending is mainly aimed at HIV/AIDS prevention. The budget allocates R75 million for the departments of Education, Health and Welfare to finance an integrated response to the HIV/AIDS epidemic. The intention is to target mostly children and the youth.
Shaamela Cassim is a researcher in the Children’s Budget Project at the Budget Information Service Programme at IDASA
Debt reliefby George Dor In the last few years, there has been a international leap forward in awareness around the issue of debt. A few years ago, the biblical concept of Jubilee, a periodic writing off of debts and starting afresh, was concretised into the Jubilee campaign. The Jubilee concept has ensured the active participation of the churches and has attracted a wide range of social organisations, including trade unions, community organisations, women’s, youth and student structures, NGOs and environmental organisations. In Latin America and in countries as diverse as the Philippines in Asia and Uganda in Africa, antidebt activity predates the international Jubilee 2000 campaign by years and even decades. In South Africa, ANC leaders, COSATU, Sangoco and the churches called for cancellation of the apartheid debt in the earlyand mid1990s. The Jubilee 2000 campaign is thus not something new, but rather a further development in the struggle against debt. Jubilee 2000The initial Jubilee 2000 campaign call was for debt ’relief’ and cancellation of ’unpayable’ debt. The concept of the portion of debt that was unpayable then shifted from a mere accounting exercise in which the size of the outstanding debt was reduced with no tangible benefits to affected people to one which included that portion of debt repayment that would compromise socially necessary spending. Despite the onerous debt servicing costs and increasing debt burdens, there is a steady flow of resources from indebted countries to the North. The Jubilee South Africa founding declaration opens as follows: "The poor of the world are subsidising the rich. For every $1 given in aid, $1,31 is squeezed out of Africa in debt repayments to the rich countries". The budgetThe call for debt cancellation, an end to structural adjustment programmes and reparations is a call to meet peoples’ basic needs. The resolution of the debt issue thus entails ensuring that resources are channelled in this way. Government budgets are an important tool in this regard. Far from cancelling the apartheid debt and redirecting these resources to social expenditure, Minister Manuel announced in his recent budget speech that debt servicing will have "first call" on the budget. This year, R46 billion will be spent on servicing the debt. The budget also allows for R30 billion to be spent on submarines, warships, helicopters and fighter planes. If the debt and the arms deals were cancelled, billions of Rands could be released for development. The reversal of this year’s tax break and last year’s company tax reduction would make a further R13 billion available each year. A more fundamental shift in tax policy and a relaxation of strict fiscal deficit targets would release billions more. Jubilee 2000 South Africa has taken an increasing interest in the national budget. Provincial Jubilee structures are starting to become more active in this regard. Jubilee Gauteng released a discussion document towards a people’s budget and Jubilee Western Cape joined unions in a march on parliament on Budget Day. In the months ahead, Jubilee 2000 South Africa will develop its demands and step up campaigning on reparations. George Dor is the coordinator of CANSA (Coalition Against Neoliberalism in South Africa).
Not yet pro-poorby Ravi Naidoo A national budget is meant to match national needs with available resources. Poverty is one of the main challenges facing South Africa. How does the latest budget fare?The budget introduced sweeping tax reform. Marginal tax rates were reduced and the tax brackets were adjusted. How the R9,9 billion tax break is distributed
Forty percent of the R9,9 billion that the government has handed back to tax payers benefitted lowerto middleincome earners in the less than R70 000 income bracket. This means these working people will pay between R660 and R1 560 less tax a year. However, 22% of the cost of the reform, or over R2 billion, has been handed back to highincome earners. Did government need to assist the wealthy at the expense of public funds, rather than use that revenue for antipoverty programmes?The explanation that lower taxes on the rich will encourage them to stay in South Africa, thereby reducing the skills drain in the economy, is debatable. Several other factors are motivating emigration. In particular, crime rates appear to be the biggest cause of emigration. Yet crime is mainly caused by poverty and inequality, problems that require a larger role for the public sector and the fiscus arguments against tax cuts. However one progressive change on the revenue side is the decision to tax capital gains. This will bring in more revenue from the rich, especially if one considers the extent to which share prices have been increasing in stock exchanges. The next table shows that, in 1993, higher earners received a disproportionately large share of the national budget. This pattern, not uncommon in other countries, shows that the wealthy make higher use of subsidised social services such as health and education. Distributional impact of government expenditure
The figures confirm that, by 1997 (the latest year for which data is available), government spending programmes have become targeted more in favour of the poor. This has happened through spending programmes targeted at the poor, shifts of priority within spending programmes (such as a focus on preventative, rather than curative, health care), and redistribution of resources between provinces and between districts and schools. Despite these advances, further progress can be made. For example, state old age pensions (SOAP), which are so important to rural areas, have only increased by R20 (to R540 a month). Currently 80% of pensionage blacks get the SOAP, and threequarters of these poor households are supporting small children. Further research shows that where poor rural households get the pension, they ask for 30% less remittance from working relatives in the cities. This takes some pressure off working relatives, allowing them to benefit indirectly from the state old age pension. Explaining this real cut in what is essentially the main life line to a vast number of rural dwellers, government stressed that it could not afford to increase it further. The government explanation, however, must be seen against the R2 billion tax break given to the upperearners. If the pension had been increased by inflation, it would have only cost another R40 million. ReprioritisedFinally, one must make a distinction between a reprioritised minimalist budget and a propoor budget. In rural areas mostly without economic infrastructure, formal skills, and consumer incomes markets do not operate. To address this problem, the Minister of Welfare announced his intention to investigate an income grant. This grant, as initially proposed by the labour movement, would be a direct government transfer to the poor, and ensure that the consumer incomes of the poor are raised, which could lead to multiplier benefits in rural economic development. The Minister of Welfare estimated that a grant system could cost R7 billion, almost R3 billion less than the tax cuts that the Minister of Finance has just handed out! The decision to give tax cuts rather than expanded government expenditure for income grants is a missed opportunity to help the poorest of the poor. But there is nothing preventing government from introducing a grant system next year, even if it means clawing back some of the recent tax cuts. Ravi Naidoo is Executive Director of Naledi
Women and taxby Debbie Budlender The government has given a higher percentage tax cut to men workers than to women workers. This is because men tend to earn more than women because of the jobs they do and the industries they work in, as well as because of outright discrimination. Furthermore, tax cuts only benefit those who earn enough to pay personal income tax. The majority of South Africans do not fall in this category. A large number of people are unemployed, and have no regular taxable income. Others have a regular income, but it is below the tax threshold. Women make up a clear majority of the people who don’t pay individual tax. More women than men are without jobs. When they do have jobs, they usually earn less than men. For example, the million or so domestic workers in the country do not earn enough to pay personal income tax. All these people do, of course, pay many other types of taxes. Most importantly, they pay VAT. And the Department of Finance itself acknowledges that poor people pay a higher proportion of their income on VAT than rich people do. Taking awayWhen the Minister introduces tax cuts which put R9 billion into taxpayers’ hands instead of into the government budget, he is taking away from those who are too poor to pay individual tax. For many of the poorest women, he is taking away money that could have been used to increase the child support grant so that it does not stay at the low level of R100 where it has been since 1998. The fact that the poorest people do not pay individual income tax means that the impact of tax deductibility provisions are not always as simple as they seem to be. For example, the latest budget announced that donations to primary schools will now be tax deductible. Wealthier parents will be able to make taxdeductible donations to their own children’s schools, allowing for lower school fees. Meanwhile, the state will receive less money in tax, and so have less to spend on ensuring that even the poorest schools have textbooks. TariffsCustoms and excise are another important source of revenue. Customs tariffs affect goods which are imported. Excise affects goods which are produced locally. Both are of particular importance for workers, because they affect the profitability of the businesses that produce different goods and services, and thus the number of jobs available and the wages and conditions in those jobs. Government itself acknowledges that GEAR has not produced the jobs it promised. On the contrary, the number of jobs has fallen significantly over the last few years, particularly in the formal sector. Some sectors have been hit harder than others. In clothing and textiles, in particular, there have been serious job loss as globalisation brings increasing competition. This has brought particular hardship for women, as the clothing and textile industries are heavily femaledominated. In the past, imposing tariffs on imports was an important way that countries protected their economies from competition. They promoted local job creation and retention. As a member of the World Trade Organisation (WTO), South Africa is committed to reducing tariffs and other barriers to trade. When South Africa joined the WTO’s forerunner, the General Agreement on Trade and Tariffs (GATT), special concessions were made to ease the country’s entry into the global economy, particularly for sensitive industries like clothing and textiles. Yet, since 1995, the Minister of Trade and Industry has lowered tariffs at a faster rate and to lower levels than those required by the WTO agreement. With globalisation and removal of tariff barriers, revenue collected by customs and excise will almost certainly decrease over time. The Women’s Budget Initiative is currently studying the gendered impact of customs and excise in South Africa. The report should be available in the next month or two. Debbie Budlender works for the Community Agency for Social Enquiry (CASE) and is the coordinator and editor of the Women’s Budget Initiative. |
