Trade union Solidarity on Monday asked Minister of Finance Trevor Manuel — ahead of his Budget speech on Wednesday — to focus on job creation, which will stimulate economic growth.
Solidarity was presenting its wish list for Wednesday’s Budget speech at a media conference in Johannesburg.
Solidarity economist Lullu Krugel argued that economic growth on its own has proved to be inadequate for the creation of enough jobs to absorb new entrants into the labour market.
“Although the current outlook has improved, and the South African economy is healthy at the core, there is still a long way to go in the job-creation department. Job creation is the only long-term solution to poverty. Increased social spending and basic income grants have brought relief to the very poor. It has not, however, improved their prospects in the long run,” she said.
The trade union predicts that the 2005/06 Budget will continue the growth trend, with increases expected for services such as health, education, security and infrastructure.
Education will once again be one of the main spending items on the government’s list. Increased spending on basic income grants to reduce poverty reduction may also be expected, Solidarity predicted.
The union added that taxation on pension fund income has also been in the spotlight, but the possibility exists that these tax laws may only be revised after the new pension fund Act has come into effect.
Job creation
On job creation, the union asked what incentives there will be for companies to employ more people and how the government will translate social grants — a short-term means of poverty reduction — into creating jobs, which will provide a long-term solution to the problem.
Solidarity expects — as President Thabo Mbeki indicated in his State of the Nation address — service delivery and the improved capacity of state departments and public sector employees to be key government priorities in the coming months.
On the cooperation between the National Treasury and the South African Reserve Bank, the union asked how these two institutions will work together to ensure that the economic targets of job creation and growth are met through monetary and fiscal policy.
Solidarity said that at the moment, the Reserve Bank’s stance on interest rates seems to be hurting certain sectors of the economy, such as tourism, manufacturing, mining and agriculture — a view that seems to be diametrically opposite to what the finance minister and the Treasury want to achieve through their growth-oriented policy.
“The latest growth figures in the economy show that growth in the fourth quarter of 2004 was 4,5%, 1,2% down from the third-quarter growth of 5,7%, bringing the rate for the year to 3,7%, up 0,9% from 2003. Problem areas were the agricultural sector, where output decreased from 11,7% in the third quarter to 4,1% in the fourth quarter,” the union pointed out.
According to the union in the mining sector, output shrank by 1,1%, while on the manufacturing side exporters reported negative growth.
“Although there has been a reduction in personal income-tax rates over the past few years, many South African citizens still feel that they are paying for services they do not receive, or for services that are below standard.”
Indirect tax burdens
The union claimed that indirect tax burdens on South Africans have increased.
“We have to pay for the right to use certain roads, because the maintenance component of infrastructure has been awarded to private companies; health services are not accessible, or are below standard, forcing South Africans to pay exorbitant amounts for medical cover; school fees and the cost of education are also beyond the reach of many South Africans.”
Solidarity said that retaining existing jobs in the economy should be as important as creating new jobs.
“Developing and supporting sectors of the economy, such as the agricultural sector and mining sector, which have been the backbone of the South African economy for years, should be as important as the development of the services and manufacturing sectors of the economy.”
The union noted that although the role of the primary sectors in the economy is decreasing as other sectors gain increasing importance, they are still the livelihood of thousands of South Africans.
Solidarity said it would like to hear from the government how it intends to provide continuous support for these sectors in future.
Solidarity wanted to know “how the government plans to shift the brunt of the revenue from direct to indirect taxes. In developed and developing economies, one of the trends is that the burden of direct taxes is gradually decreased, while indirect taxes become the main source of income. As a result, tax evasion and tax administration costs are reduced,” the union said.
Solidarity also wanted clarification on “how tax measures will be simplified in order to stimulate growth of small and medium enterprises, as well as to stimulate foreign direct investment”.
“At the moment, complicated legislation proves to be a big hurdle for entrepreneurs planning to start a business and for established smaller businesses. It is also a deterrent to foreign companies planning to invest in South Africa.
“Solidarity looks forward to the Budget speech on Wednesday. We hope that the minister will provide us with answers to at least a few of the questions and issues raised here,” Krugel said. — I-Net Bridge