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The People’s Budget Coalition is a coalition of trade unions, churches, civil society organisations and NGOs groupings under the auspice of the Congress of South African Trade Unions (COSATU), South African Council of Churches (SACC) and South African Non-Governmental Organisation (SANGOCO).

We have taken note of the budget announced by the Minister of Finance.

The Peoples Budget has for many years been campaigning for the adoption of fiscal and monetary policies that will make a decisive intervention in the battle against unemployment, poverty and inequalities.

We have expressed disappointment over and over again about the inappropriate framework that has been adopted by the government since 1996. This conservative and ultra cautious framework largely remains government’s stance even today, despite a promise to adopt a ‘business unusual’ approach. Largely despite some welcome shifts, that we will refer to, this year’s budget remains trapped in the conservative, ultra cautious and pro-business mould and therefore it is still to qualify as a people’s budget.

Our challenge

The persistence and increase in unemployment: Unemployment among Africans was estimated to be 38% in 1995 and it stood at 45% in 2005. Overall, the unemployment rate in the South African economy was 31% in 1995 and increased to 39% in 2005[1] <#_ftn1> . Whilst this somehow improved since then, unemployment remains extraordinarily high at 36%.
Poverty incidence remains high: There is no official poverty line for South Africa. Yet, based on measures that are sensitive to household size, one study found that 57% of individuals in South Africa were living below the income poverty line in 2001, and this remained unchanged from 1996[2] <#_ftn2> . But measures that assume individuals need R322 a month to survive show that individual poverty has declined from 52.5% to 48%[3] <#_ftn3> .
Redistribution of income has not occurred and inequalities have worsened: Besides the decline in the real incomes of African households between 1995 and 2005, income inequality has increased across the board. In 1995, the Gini coefficient stood at 0.64 but it increased to 0.68 in 2008[4] <#_ftn4> . The share of employees in national income was 56% in 1995 but it had declined to 51% in 2009. The top 10% of the rich accounted for 33 times the income earned by the bottom 10% in 2000[5] <#_ftn5> . This gap is likely to have worsened, given the fall in the share of employees in national income and the global economic crisis of 2008[6] <#_ftn6> . Approximately 20% of South Africans earned less than R800 a month in 2002, the situation is worse for Africans. By 2007, approximately 71% of African female-headed households earned less than R800 a month and 59% of these had no income; 58% of African male-headed households earn less than R800 a month and 48% had no income. Even the Minister of Finance has acknowledged that 50% of the population lives on 8% of national income in South Africa[7] <#_ftn7> .
Income inequality is still racialised, and has deepened within racial groups. An average African man earns in the region of R2 400 per month, whilst an average white man earns around R19 000 per month.
The means of production and power remain concentrated in white capitalist hands: Crucial sectors in the economy continue to be dominated by a few large conglomerates with cross directorships.
The structure of the economy remains mineral-dependent and is now finance-led: The economy is still very much reliant on mineral exports for foreign exchange earnings.
Control of the economy is still in white hands: Top management and senior managers continue to be predominantly drawn from the white population. This perpetuates historical networks that determine the probability of promotion and recruitment.
The health profile of the population has deteriorated: The life expectancy of a white South African now stands at 71 years and that of a black South African stands at 48 years, according to the South African Institute of Race Relations Survey (2009).
The crisis in education persists and the quality of education is declining: What is of major concern is that 12-year olds in South Africa perform three times less than 11-year olds in Russia when it comes to reading and 16-year olds in South Africa perform three times less than 14-year olds in Cyprus when it comes to mathematics[8] <#_ftn8> . Nevertheless, white learners perform in line with the international average in both science and mathematics, which is twice the score of African learners. It is estimated only 3% of the children who enter the schooling system eventually complete with higher grade mathematics, 15% of grade 3 learners pass both numeracy and literacy, 70% of our schools do not have libraries and 60% do not have laboratories, 60% of children are pushed out of the schooling system before they reach grade 12.
The budget speech hardly articulates this South African reality. In fact this reality is hardly comprehensively and adequately articulated in the government’s New Growth Path. This is our main criticism of that government strategy. We avoid making this rather embarrassing assessment of our development precisely because it demonstrates that our responses so far have been wholly inadequate and have amounted to fiddling on the outskirts when bolder and more decisive interventions were needed. This is unfortunately what the budget speech does – fiddling on the outskirts whilst Rome is burning.

Our biggest criticism of government economic policies remain their macro-economic framework, in particular the continued focus on inflation targeting and reducing the budget deficit which robs the government of the resources so desperately needed to address the structural weaknesses we have pointed out above.

These structural challenges will simply not be resolved by this hesitant and overly caution stance adopted. This hesitant approach is demonstrated by the speech correctly articulating bold and decisive steps taken by Brazil and South Korea amongst others in relation to the introduction of tax or regulatory measures to deter investment flows and currency speculations. Yet instead of following this bold example our government, with much worse levels of unemployment, poverty and inequalities, only raises it as a possibility for further consideration. What a missed opportunity! No wonder Brazil’s President Lula in just ten years achieved so much for his country whilst our challenges have worsened on key issues as reflected above.

Specific comments on the programmes

Jobs and youth unemployment

We have over and over warned that unemployment, in particular youth unemployment, constitutes the biggest threat to our stability. We have pointed out repeatedly that the country is sitting on a ticking time bomb that is already starting to explode.
Accordingly we welcome the continued focus on addressing unemployment in particular youth unemployment. This is in line with the State of the Nation Address.
However the measures contained in the budget speech fall far short and will simply not address the structural unemployment crisis we face. This budget overall will not help us address the persistent structural weaknesses of our economy. The budget speech (see page 8) focuses a “steady employment gains of about 2% a year”. This will simply not be adequate to meet the government’s target of creating 5 million jobs in the next ten years.
Government simply lacks political will to confront the structural crisis we face in relation to youth unemployment. Youth unemployment is not only a structural problem linked to the structural crisis we have pointed out but also to the education crisis. No matter the amount of wage subsidies and tax incentives government offers to business, year in year out, it will not address this structural nature of youth unemployment.
We remain opposed to youth wage subsidies and believe that government lacks capacity as shown by countless examples to enforce its own laws. The youth wage subsidy not only introduces a two-tier labour market system that we oppose but will be abused by the unscrupulous employers who will keep an army of young workers permanently and replace secure and better paying full time jobs currently held by older workers. This in return will undermine the government’s stated objective of creating decent work, addressing inequalities and poverty.
Having said that we welcome the amounts announced focusing on this critical challenge. At least this year government has moved more to put resources aside, which will make a contribution to dent unemployment.
We continue to support the public employment programme. The R75bn is critical to supporting public employment programmes as a transitional measure towards full and decent employment. It is important that government address many of the shortcomings in the public employment programmes, more specifically the development of skills to support better employability of EPWP and CWP participants.

While we welcome this tax incentive on investment in manufacturing, we remain wary about the impact this may on employment, given our past poor experience on tax incentives and low employment creation. While previous tax incentives emphasized job creation this has not been achieved, with higher investment in capital intensive manufacturing. A clearer job creation criteria linked to an extensive monitoring and evaluation programme will be required for a successful tax incentive.

Education and skills development

We welcome that education remains the biggest item of expenditure. Many studies which reveal that our country is spending more resources on education and health than many developing economies yet we perform worse than they do as reflected above. There are leakages in our system that need to be addressed. Adequate Planning, Monitoring and Evaluation must be the cornerstone of an effective and quality education system.

In order to address this problem government should move towards zero budgeting, so that all departments, in particular education and health will track every cent of public money to ensure there is no leakage.
Above all we hope that a more detailed policy statement to address not only the quantity challenge but the quality challenge will be articulated by the Minister. We are keen to hear how this budget will be distributed so that we can realise the President’s ambition to do away with mud schools. We also hope that the budget is adequate to ensure students and teachers are properly supported with libraries, laboratories, safer schools, etc. We welcome and at the same time hope that the R8.3 billion over the MTEF period is adequate to address these massive infrastructure backlogs.
The R14 billion towards FET is in the right step towards free education and much needed skills and development for young people.
However, the R25bn for skills is questionable given the current poor state and functioning of many SETAs. This appears to be just throwing money to the problem. We hope that the budget allocation will help towards SETA restructuring and deliver on much needed skills, particularly for young workers.
We note with concern that no clear provision is made in the budget for qualifying final year students or the exemption of fees for “ …students in further Education and Training Colleges who qualify for financial aid..” [9] <#_ftn9> as indicated in the State of the Nation address.
On Health:

We welcome the significant jump in the health expenditure budget over the previous MTEF period and the implementation of the ten-point plan that would lay the basis for the NHI. The significant budget increase over the period has failed to address the most basic problems in the public health delivery system. Public health facilities lack skilled managers to run hospitals, a lack of basic medication and equipment and many other challenges.

We stress the need to zero budget the health for the reason pointed out above.

We welcome the commitment that government will consult the stakeholder on the funding of the NHI but reject strongly the consideration of using VAT and individual taxable earnings of low income earners above the tax threshold. VAT is extremely regressive tax that punishes the poor more than the rich.

On Rural Development:

Government, at all levels, continues to pay “lip service” to rural development and land reform. Should we continue to fail in supporting rural job creation strategies a realistic and well supported local economic development strategy will continue to see the ever increasing migration of young workers from rural areas into the city centre. This will undoubtedly continue to place pressure on infrastructure and risk food security in our country.

On Crime and Corruption:

We welcome the initiatives and budget announcement that would reduce crime and corruption in all spheres of society. In particular, we warmly welcome the steps towards tightly regulating tendering procedures. These are important steps in the right direction to combat corruption.

More and visible policing is critical to reducing crime, as well as improving the skills of all investigative units. Lastly, the allocation towards improving technology in policing systems is well received by the PBC.

On Transport:

Poor rail infrastructure and investment at an industrial and commuter level remains appalling. The allocation of R80bn over the MTEF will not be sufficient considering the excessive cost of just the Gautrain alone, backlogs in public transport and transport infrastructure. The R2.5bn amount allocated for public transport systems and infrastructure in municipalities is completely inadequate to support inclusive economic growth and development.

On Social Security:

We continue to urge for the release of government’s comprehensive proposals on social security. This is long overdue and requires urgent attention.

It is disappointing that while the speech notes that countries such as Brazil, South Korea and Thailand introduced measures to counter high capital inflows and currency speculation the Minister was unable to announce anything more decisive than its intention to “monitor the adjustments” made in those countries. It would have been more appropriate to have used this opportunity to introduce taxes on short-term capital inflows and a financial transactions tax.
On Taxes:
We note that whilst total tax revenue increased for the 2010/11 period, this has been disproportionately achieved through reliance on personal income tax and VAT with corporate income tax revenue performing lower than originally projected. We would have preferred for the budget to disclose a more redistributory tax model that would not only have expanded the range of zero VAT rated goods, but would have introduced a progressive tax system that would target the “super-rich” as well as taxes on luxury goods especially those that are imported.
On Financial Regulation:
We note that there is an intention to embark on a policy review process in relation to financial and investment regulation, which we will engage with once details are made known. We also support the long overdue introduction of measures to counter exploitative banking charges.
The Peoples Budget Coalition will provide a more detailed response to the National Budget.

Statement: Media Briefing of the Economic Sectors and Employment Cluster

In his State of the Nation Address, President Zuma announced 2011 as the year of the job creation through meaningful economic transformation and inclusive growth. As a structure designed to ensure policy coordination and alignment across the government on issues of economic development, employment and equity, the Economic Sectors and Employment Cluster will be central to the implementation of this directive. Thus our work will focus on critical regulatory and policy reforms that support overall growth and meaningful economic transformation, and the unlocking of growth and employment potential in the key jobs drivers as identified by Cabinet in the New Growth Path.

The Cluster has identified major interventions to achieve the over-arching aim of five million new jobs by 2020. We are however cognisant of the fact that South Africa, like other economies across the globe, is emerging from a devastating economic crisis that saw us shed almost a million jobs since 2008, with employment only starting to grow in the past six months. Moreover, while there are signs of recovery from the downturn, we are still dealing with the underlying structural challenges of high unemployment, poverty and inequality.

The New Growth Path proposes a number of complementary interventions to overcome the structural weaknesses in the economy. These interventions are needed to achieve the jobs-rich growth required to address the unusually high levels of inequality, poverty and unemployment still found in our country.

We recognise that, as the New Growth Path notes, while employment creation directly by the state – through employment in government agencies, public employment schemes and subsidy systems – may prove important in the short run, especially in the recovery from the downturn, in the longer run employment creation by the private sector will prove critical. For this reason our proposals centre largely on how government policies and programmes can do more to encourage growth in sectors that can generate employment on a large scale.

Job creation will be at the centre of all government’s programmes in 2011. This focus is necessary to overcome systemic and spatial patterns of development established under apartheid that effectively marginalise much of our people from the core formal economy. To this day, despite relatively rapid economic and employment growth since the transition to democracy, only 41% of working-age adults have a job, compared with the international norm of over 60%. The labour absorption rate is as high as 64% in Brazil, 71% in China and 56% in India.

The Cabinet Lekgotla in January prioritised key interventions to encourage accelerated employment creation in the coming year. These interventions centre on measures to support employment creation in the main economic sectors while making the economy as a whole more productive and employment friendly. Government departments will now table action plans that lay out how they will create employment directly and, even more important, by creating an enabling environment for employment creation in the private sector.

A central initiative to support employment creation in the coming year will be the establishment of the Jobs Fund. As outlined by the President and reaffirmed in the Budget Speech, the R9 billion Fund will support projects with the potential to create jobs on a large scale, particularly for youth. Projects supported by the Fund are expected to employ 50 000 to 100 000 people over the next 3 years. The funds are currently on the National Treasury vote and the rules that will govern the fund will be published later in the year.

The creation of decent work remains the principle intervention for addressing poverty and inequality. In addition, the New Growth Path proposes a number of complementary interventions to address structural challenges underpinning inequality.

These include:

• ensuring more equitable access to education and skills development;

• accelerating rural development;

• supporting land reform designed to support a more productive and inclusive agricultural economy; and

• upgrading financial services for smaller enterprises and the social economy.

Key workstreams are: job creation by government, the contribution of state-owned enterprises and development finance institutions, unlocking growth and employment potential of key jobs drivers, the implementation of crosscutting policy and regulatory reforms and the social pacting process.

Government Department’s contribution to job creation

In line with January Cabinet Lekgotla resolutions, government departments will;

• Set targets for direct job creation, and skills development through their programmes and institutions, as well as

• Include specific targets for inclusion of economically marginalized people (youth, women and persons with disabilities) within their overall employment and training targets.

The Cluster in collaboration with Performance Monitoring and Evaluation is developing a system for monitoring net job creation from government interventions and policies, both directly through employment in programmes and local procurement, and indirectly through the creation of a more conducive environment for private job creation.

State Owned Enterprises (SOEs) and Development Finance Institutions (DFIs)

Implementation of the New Growth Path will require greater leveraging of key institutions and agencies of the State. We have a wealth of resources; skills, investment, experience in our DFIs and SOEs which will need to be better utilised if our ambitious targets for job creation and skills development are to be met. The Cluster will work closely with colleagues in the Infrastructure Cluster to achieve this.

Jobs Drivers

We have developed concrete actions and priorities for 2011 based on the jobs drivers prioritised by Cabinet for this year. These are infrastructure, manufacturing, the mining value chain, the agriculture value chain, the green economy, tourism and other services.

Infrastructure

On infrastructure we will maintain high levels of public investment focusing on transport and energy. This jobs driver creates direct employment during construction and maintenance, but is also a critical enabler of growth and employment throughout the economy. Public investment expenditure will further be leveraged upon through procurement reforms to support domestic manufacturing and employment.

Manufacturing

Implementation of the Industrial Policy Action Plan as adopted by Cabinet in February 2010 is proceeding well. Key successes include;

• Work on improving the regulatory environment and supporting investment in the automotive sector to the tune of R2, 69 billion over the 2010/11 to 2012/13 MTEF period. These interventions have been instrumental in securing R13 billion in private sector investment commitments and supporting the creation and retention of 24 000 jobs in the sector.

• An interdepartmental task team reviewing the Preferential Procurement Policy Framework Act, (PPPFA) regulations has concluded its work and the recommended amendments are currently before Cabinet. Implementation of these amendments will be prioritised in 2011 to support local procurement and domestic industries.

Illegal imports have continued to threaten the existence of vulnerable sectors such as clothing and textile and other infant industries. More capacity will be deployed to strategic ports of entry to significantly reduce illegal imports. An intergovernmental task team comprising of SAPS, SARS, DTI, DHA and EDD will be established to develop and implement other measures to counter illegal imports.

The Section 12i Income Tax Allowance Incentive was launched by the Minister of Trade and Industry in December 2010. Investments with the total value of R6.8 billion have been approved.

The mining value chain

Work in the mining value chain will focus on encouraging growth in the sector in particular through the development of a new licensing regime promoting transparency and trust in the allocation of mining licenses. Cabinet has approved the formation of a State-owned mining company, and work is underway to realise that mandate. We will also be working to finalise the beneficiation strategy with a focus on maximising sustainable employment creation while avoiding an excessive strain on our limited energy supplies.

The agricultural value chain

Agriculture is developing proposals for supporting subsectors in ways that maximise employment creation, upgrade employment for farmworkers and improve food security, including by stabilising production of wheat and maize. It is also committed to expanding the Zero Hunger Campaign. Government is committed to establishing a supportive environment including by ensuring more competitive pricing of inputs, starting with fertiliser; increasing demand through stronger agro-processing and export marketing; and actions to fast-track water licensing and facilitate solutions to complex land claims.

The green economy

We will finalise a strategy for supporting industrial development through the green economy, leveraging upon interventions already agreed and in place through the IPAP process amongst others. The Integrated Resource Plan (IRP) 2 public consultation process has been finalised, we will make announcements soon in this regard with clear signals on the role and opportunity for the domestic renewables industry.

Tourism and other services

In tourism, we will unlock the potential for growth and employment through finalisation of the airlift strategy and developmental pricing arrangements for strategic markets. We will also review visa requirements for strategic markets and intervene to improve tourism infrastructure.

Other jobs drivers

We have also developed action plans for the knowledge economy, social economy, and African regional development. Further details of this will be available in the Outcomes briefings later in the year.

Policy and Regulatory Reform

The January 2011 Cabinet Lekgotla, decided on key policy and regulatory reforms that will support employment across these jobs drivers. These cross-cutting issues will be prioritised and include;

• The setting up of the Companies and Intellectual Property Commission

• Reform of Broad-Based BEE Codes so they contribute more to employment creation directly and through local procurement, with greater incentivisation of support for local procurement, SMMEs and broad-based ownership

• An anti-red tape campaign to minimise unnecessarily burdensome procedures especially for small- and micro-enterprise

• A national one-stop shop to support major projects in getting regulatory approvals and infrastructure. This will be based on a plan to strengthen the capacity of TISA.

• Strengthening of the powers of Competition Authorities through amendment of the Competition Act building on current successes.

Finally, government is committed to upscaling financing for economic development, especially for activities that create employment. Already, through the IDC substantial progress has been made and resources identified.

Social Pacting

In our engagements with Business, Labour and Community we have established commitment on the vision, broad aims and key elements of the New Growth Path. We are now working with social partners to finalise concrete commitments to support job creation, investment, skills development and equity. There are some low-hanging fruits in which government can work with social partners and there are some areas in which further work and discussion is necessary, progress on both tracks proceeds well.

We thank you.