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Budget and Expenditure Monitoring Forum
26 Feb 2014 09:53
Finance Minister Pravin Gordhan. (David Harrison, M&G)
The Budget and Expenditure Monitoring Forum (BEMF) and Call for Budget Justice imagined, for budget 2014/15, what we would say to the nation if we were the minister of finance. We listened to the needs and demands being expressed by communities the length and breadth of South Africa.
After careful consideration, we were able to prepare a people's budget speech for a people's finance minister.
Excerpt from the people's budget speech
Honourable people of South Africa,
Good morning to you all.
In the 20th year of our democracy, after careful thought and study of the results of previous budgets, we have decided to take a fundamentally different approach to the budget 2014.
We have a constitutional duty to allocate budgets and human resources fairly; to provide quality basic education in the shortest time possible; to ensure safe and clean neighbourhoods; to create employment and to "progressively realise" (steadily improve) certain constitutionally enshrined rights that are key to people's ability to live. In short, we have to deliver a cheque that can be cashed in order to narrow inequality.
I wish to say a few words to the privileged in South Africa. Implementing the same budget year-on-year will undoubtedly bring greater social, economic and political instability. Adhering to market fundamentalism to support economic privilege only for some has, and will continue to have multiple costs: unemployment, crime and instability, as well as environmental degradation.
I ask the wealthy in South Africa to accept the necessity of changing the way we bring more resources into the public purse and to support our efforts towards greater social solidarity.
Corruption and mismanagement
We recognise that the fight against corruption and financial mismanagement must be addressed by both the public and private sectors. Corruption is to a large extent a public-private partnership. It thrives where the public sector is underfunded, understaffed and withdraws from its service delivery responsibility. We have started to address the question of the cost of consultants. We will now turn our attention to our bloated tender system. This takes me to my next point, namely taxation.
After 20 years of democracy, there is growing recognition within South Africa and around the world that some of us can afford to pay more tax and still be left with enough money to live comfortable lifestyles.
Therefore, we are scrapping the 25% national tax rule, mentioned in the budget speech two years ago. Any country collecting less than 35% of its gross domestic product (GDP) in taxation is a low-tax economy. If we had not cut taxes every year for the past 14, the personal income tax alone would have raised additional taxes totalling more than R125-billion. I say this only to indicate what is possible.
Indeed, if the richest people in the country were taxed according to their ability to pay, government could raise an extra R100-billion per year. Only 2 200 people with an income of over R5-million are in the tax registers of the South African Revenue Service. But 50 000 people or more with such an income live in South Africa. We say to them: now is the time to start paying your taxes.
International companies doing business in South Africa must also pay their fair share for their use of our minerals, water and other natural resources, roads, schools and human capital. We ask the public for support to help us to implement regulations that block the use of tax havens.
In short, tax reform will contribute towards broadening the revenue side of the budget and make available necessary resources for key policy areas such as health, basic education, housing, social protection and rural development.
The budget deficit
We expect to raise an additional R300-billion in taxes, but while waiting for the reforms to take effect, we need a more expansionary fiscal policy. This calls for a revision upwards of last year's deficit of 6% of GDP. Again, this is not exceptional. The United States, United Kingdom, France and India have budget shortfalls in excess of 8% of GDP.
But from whom shall we borrow? The Unemployment Insurance Fund has been underspending its contributions for many years, which is currently at about R11-billion per year, so the fund is sitting on over R50-billion lying idle. The Public Investment Corporation for pensioners currently manages funds exceeding R1.5-trillion, and sometimes does so by taking great risks: close to the entire government budget for 2014/15.
We want to offset our need to borrow from abroad at high and unpredictable interest rates. We will now borrow from these funds at an interest rate positioned somewhere in between the inflation rate and the real growth of our economy.
A people's budget
We will ensure detailed information about the local clinic, school or road infrastructure project. By factoring in accurate data relating to gender, we will be better able to develop our budgets according to needs, rather than according to how we have budgeted in the past.
We need democratic structures that empower communities to take part in allocation of resources in order to ensure we are planning and budgeting in ways that will reduce poverty, promote gender equality, continue to reverse the spread of HIV and Aids, and lower mother and child mortality rates. I call on you all to engage on budget issues on an ongoing basis. We need community control over public spending.
We regret that the treasury has not yet come out in public about how to finance the National Health Insurance. But we cannot deliver a 2014 budget that does not allocate the resources needed to reform the South African health system.
Over the medium term, the consolidated health budget allocation will increase, on average, in real terms by approximately 1% with an estimated budget of R164-billion by 2016/17. Without a doubt, the crisis in health services in the Eastern Cape is linked to the slow in real health expenditure in that province. An above-inflation budget increase is needed for health, on top of baseline allocations for the 2014/15 financial year to address service delivery backlogs especially in South Africa's rural areas.
The general perception that South Africa's spending on public education is high is wrong.
South Africa ranks 85th of 152 countries in the amount spent per pupil in basic education relative to GDP per capita. Compared to the Organisation for Economic Co-ordination and Development average, South Africa spends a full 12 percentage points less as measured by GDP per capita per pupil.
The reports of a grade R learner dying tragically after falling into a pit latrine toilet has put the spot light back on the state of our schools. It was a mistake last year to reduce spending by R1.6-billion towards the financial and physical planning sub-programme in the basic education department. The enormity of the infrastructure backlog is abundantly clear. We now make a firm commitment to eradicate it.
Does R300 per month provide adequately for the basic needs of a child, or R1 270 for those of a pensioner? The Food Price Monitor in November last year reported that a selected food basket had increased and took up a large portion of the income of the poorest households. For wealthy households it remained negligible. A poor family of four receiving two child support grants would just be able to afford the basic food basket of R456, leaving very little for anything else.
There is ample evidence that a basic income grant has the potential to contribute to economic activity and job creation as highlighted by the recommendations of the 2002 Taylor Committee. We will progressively introduce a universal Basic Income Grant, which those wealthier will pay back through their taxes.
Finally, we have seen millions of social grant beneficiaries experiencing fraudulent deductions from their bank accounts. It was a mistake to engage private business in the distribution of social grants. This will be corrected.
I am aware that the typical youth wage already is 25% lower than the typical adult median wage of about R3 200 per month. Our decision to review the so called youth wage subsidy will return R5-billion back to the public purse as a result of not implementing the subsidy.
We have talked about education, but we must also attack mass unemployment head-on. We must employ people as they are. Let young people and people in long term unemployment develop new skills and abilities to work: in the building of houses, in the repair of roads, in building the social infrastructure in working class and rural areas.
A million climate jobs
We can no longer continue on the path of allocating more money for infrastructure projects that lead to the destruction of our environment. If we don't create a low carbon economy we will soon face increasing social and environmental costs that will overwhelm us. We were about to enter "coal three", where we now will be investing in more coal fired power stations and nuclear energy. We now have decided to turn to renewable energy instead.
Small but significant shifts in how we transport ourselves and our goods could create at least 460 000 jobs. For example, if 500 000 more people rode buses to work and school, there would be an additional 3 500 users and 42 000 more workers in bus operations, vehicle maintenance and part supply as well as bus building, provided the buses are assembled in South Africa.
Dealing with the market
Regulatory measures have come into effect from 10am today [Wednesday] to protect the rand and our reserve or foreign currency. The JSE also closed when I started to speak. It will reopen tomorrow [Thursday]. We thought the so-called market needed one day to contemplate the meaning of our new trajectory.
It would be fatal for this government to overlook the urgency of the moment for fear of upsetting the market. It is clear that the events at Marikana, De Doorns, and the many service delivery protests are not an end but a beginning.
We will now rewrite the beginning. If we do not, the whirlwinds of revolt will continue to shake the fragile foundations of our hard won democracy. They will do so until we have a fiscal policy reflected in a budget that truly raises, allocates and spends rands and cents towards building a more just society.
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