/ 20 February 2004

The Budget needs a human face

Over the past few years the Treasury and the government have improved in making information on the Budget, the allocation of state resources and programmes available to the pubic timeously and in detail.

However, we should not confuse this effusive sharing of information with public participation in the Budget and fiscal policy formulation.

In the absence of the Treasury, in particular, being willing to subject its plans and priorities at the formulation stage to the legislature and the public, the government continues to make a mockery of calls for serious consideration of fiscal policy and budgetary matters. This call comes increasingly from diverse sectors. Perhaps the Treasury could learn from the spirit of President Thabo Mbeki’s direct interaction with people on the ground, through imbizos.

This concern about genuine public participation is underscored by the government’s constitutional obligation to table an acceptable money Bill to Parliament to ensure that the latter can influence and amend the Budget, and fulfil its legislative role. Engagements with labour, business and civil society at the National Economic Development and Labour Council have been less than satisfactory. It is largely for this reason that the People’s Budget Campaign — spearheaded by the Congress of South African Trade Unions (Cosatu) the South African Council of Churches and the South African NGO Coalition — has published its fourth People’s Budget Proposal. The campaign calls for increases in spending to address poverty, faster redistribution and expansionary fiscal policies.

The proposals presented in the People’s Budget this year are for the 2005/6 financial year, to ensure the government can timeously consider them and phase in fundamental changes, where necessary.

Although it is hard to measure, the continued impact of civil society campaigns on government decisions over the years is evidenced by, among other factors, the adoption of a somewhat more appropriate and expansionary fiscal policy, the decision to roll out anti-retroviral treatment for HIV/Aids; the extension of the child support grant and the expansion of free basic services. The campaign has also been instrumental in keeping economic policy on the public agenda and in building support for a modest relaxation of fiscal constraints. It has, too, through research and training work, contributed to the ability of the organisations to engage more practically and specifically in these types of policies.

We do think the calls for a basic income grant (BIG) by the BIG Coalition are beginning to receive serious consideration by the government, contrary to previous perceptions.

Two conferences in Gauteng late in 2003, engagements with the government and the recent publication of a book calling for a basic income grant in South Africa, not to mention the grant’s place in the Minister of Finance Trevor Manuel’s Budget speech, are indications that the campaign is alive and well. We are pleased that the government continues to expand the social security net.

The phased extension of the Child Support Grant to children under the age of 14 is commendable, despite ongoing concerns about the manner of its implementation, the retention of means testing and the need to extend it to 18 years.

The acknowledgement that unemployment is a primary concern, and the initiative by the government to directly contribute to gross fixed capital formation is a positive development. Positive, also, is that the government wants to incentivise domestic and social investment initiatives. Yet so much more needs to be done to address the social costs of the fiscal prudence of the government’s growth, employment and redistribution (Gear) policy in previous years.

Most fundamentally, South Africa cannot be a developmental state within a framework of the state only being a “regulator” — allowing the market such freedom to set the pace, sectoral choices and strategies to bring about economic growth.

Moreover, while economic growth is important, it is the trajectory of the growth path that must be drawn into question — is it adequate and appropriate to fulfil the commitment to halve unemployment by 2014? The structural inequalities of apartheid, fuelled by the Gear strategy during its phase of austerity, prevents a larger pool of citizens from having the capacity to contribute through various forms of taxation.

The so-called “second economy” is inherently unable to yield necessary revenue. This situation is further complicated by high unemployment, increasing commodification of essential services and increased indebtedness of low-income-earning South Africans.

Tax policy requires a fundamental overhaul to address its regressive elements. Clearly, the government has now reached a plateau in enhanced revenue-collection capacity. It is still located within a broader pro-capital, pro-market fiscal structure. It was, in fact, a relaxation of deficit targets this year and the previous year that allowed claims of a more expansionary Budget. However, this trend is not sustainable through this mechanism.

An important area that was flagged by the minister is the need for a minimum effective tax rate on companies. Similarly, monetary policy, through inflation targeting and high interest rates, has several negative implications. Lower-income earners, who are unable to access credit through banks, pay high interest. Furthermore, the poor do not directly benefit from lower inflation, evidenced by a lack of concomitant decreases in food prices, transportation costs and medical-care costs — some of the key expenditure priorities.

Finally, agreement needs to be reached as to what constitute appropriate indicators of progress. There needs to be the linkage of regional and overall indices that include maternal mortality rates, Gini coefficients, human development indices to evaluate, monitor and review the efficacy of fiscal policy.

Elroy Paulus is the research coordinator for Cosatu Parliamentary Office and serves on the National Steering Committee of the People’s Budget Campaign. Neil Coleman is the head of the Cosatu Parliamentary Office