COSATU’s Statement on 2014 Budget Speech

Thursday, 27 February, 2014 - 15:00

COSATU welcomes the improvements made in the budget but also highlights the gaps and shortfalls which require attention

The Congress of South African Trade Unions (COSATU) takes note of the 2014 budget speech delivered by the Minister of Finance, Comrade Pravin Gordhan.
COSATU accepts, as the Minister has said, that South Africa has been affected by the sweeping and devastating global economic crisis that struck every country throughout the world in 2008 and led to a collapse in commodity prices, sharp declines in international trade and a crisis in financial markets.
However, through necessary intervention by the state, we have been able to progressively come out of this crisis albeit slowly.
There are a number of positive things in the budget speech that COSATU supports. But the Minister also missed an opportunity to announce plans to implement some of the promises made in the African National Congress (ANC) elections manifesto as well as commitments made by the President in the State of the Nation Address.
We are concerned at the Minister’s repeated references to the economic policies of the National Development Plan (NDP), with no reference to the fact that NDP’s economic sections are highly contested and subject to an agreement at the Alliance Summit to reformulate them.
We welcome the increase in the overall budget despite the constraints government faces due to the slow domestic, and global, economic growth. We generally welcome an increase in the infrastructure budget by R847 billion over three years. This will go a long way in catalysing economic growth and job creation, but it is not clear that anticipated rollout is materialising. We question whether the 40 percent increase in social infrastructure over four financial years from R30 billion in 2012 to R43 billion in 2016, is adequate.
We note the commitment to a lower budget deficit but warn that this can only come from cuts in government spending. The projected average 5.8 percent current account deficit reflects the structural problems in the South African economy, and the need for a far bolder programme of diversification and industrialisation.
There are worrying signs that we are entrenching an austerity mode, despite the need for economic stimulus. The very low real annual increase of two percent per year, translates into a real cut, when we take population growth into account. The impact of this could be far-reaching, both economically and on social delivery, for example the impact on filling of critical public sector posts.
We call on government to heed the call made by the President in the State of the Nation Address that local content should be increased to 75 percent over time. The infrastructure development programme should help in strengthening local industries by increasing local content of the infrastructure development projects.
We welcome increases in social grants which will go some way to help many of our people to access basic food and services. We are however disappointed that the increases are barely above the inflation rate. The increase in Child Support Grant as usual is pathetic, well below inflation for first six months.
We congratulate government for its successful removal of one million invalid beneficiaries from the social grant system and call for stern action to recover money received illegally.

COSATU applauds the setting up of a Tax Committee to review the tax system.
COSATU has called for the following to ensure that the tax system is progressive and provides the state with the necessary resources to transform the economy and provide basic services to the majority of our people and continues to call for:

  • Introduction of a more progressive tax system, a tax category of the ‘super rich’;
  • Introduction of a solidarity tax, whose aim is to cap the growth of earnings of the top 10 percent and to accelerate the earnings of the bottom 10 percent;
  • Introduction of tax on both domestically produced and imported luxury items, but a higher tax on luxury items which are imported;
  • Imposition of a land tax to aid the process of land redistribution;
  • Introduction of export taxes on strategic minerals, metals and other resources to support downstream industries and to promote value-addition;
  • Introduction of investment tax credits to encourage local procurement of machinery and equipment;
  • Introduce a tax on financial transactions, including capital gains tax above a certain minimum threshold, to limit short-term capital flows and to encourage productive investment, and speed bumps on short-term capital flows to discourage hot money
  • Introduction of tax on firms that are stubborn in closing the wage gap;
  • Taxation of firms that pay below the statutory minimum wage, and the distribution of such tax proceeds back to the workers concerned.

We are disappointed that the Minister has not announced the introduction of capital controls which have been dismantled over a period of time and that has resulted in outflow of capital which is affecting the economy negatively.

We note the Minister’s comment regarding the recently introduced Employment Tax Incentive Act, but wish to reiterate our opposition to this Act and our concerns about its negative consequences. In line with the promise made by government, we shall be engaging in National Economic Development and Labour Council (NEDLAC) in discussions on the regulations under which the Act will be operated. We are puzzled as to how the Minister can claim that there are already 56 000 beneficiaries of the Act, before any regulations have been negotiated and finalised, and demand to know the basis for this figure.
While we welcome the Minster’s announcement that there will be an increase in infrastructure spending, we are surprised that the road infrastructure has not been specifically mentioned. We had expected the Minister to make a bold announcement on the funding of the road infrastructure in the light of the failure of the unjust e-tolling system. The Minister has announced an increase in fuel levy and we repeat our call to move away from the iniquitous ‘user-pays’ principle to fund the road infrastructure, which is a basic public service and not a commodity.

We had also expected the Minister to announce steps to implement the legislated minimum wage as promised in the ANC elections manifesto.

We welcome increased spending in education and health. However, we had expected the Minister allocate more towards the reopening of the nursing and teachers colleges. The improvement of quality public health and education depends on in part on narrowing the nurse-patient and teacher-learner ratios respectively.

The ongoing dispute between Department of Health and Treasury on the NHI needs to be closely watched and the proposed white papers, which have been delayed by the Treasury for several years, must be intensively interrogated, to see that they address the criteria set out in the ANC's 2014 manifesto. Secondly, we need to unpack proposed spending plans to test whether these are adequate to roll out of the NHI. Existing work by AIDC suggests not.
While the emphasis on support for agriculture, particularly the increased support to the subsistence and smallholder farmers, is welcome, there is still no indication that state will intervene in the production and distribution of affordable food, and act against retail monopolies, as reflected in the 2009 and 2014 manifestos. COSATU is disappointed that the Minister failed to announce measures within the fiscal policy to implement the ANC resolution on land reform and restitution and the commitment in the State of the Nation Address to move away from the willing-buyer/willing-seller principle to a just and equitable principle.
We welcome the increased tax-free lump sum retirement fund for low income earners. But, as we have repeatedly stated, reforms to retirement funds have to be negotiated in good faith with labour. Treasury has very bad record on this at NEDLAC. We are still waiting, many years later for government to table comprehensive social security strategy, which is linked to reform of retirement funds.
COSATU repeats its support for the establishment of the Chief Procurement Office to ensure that government gets value for money and address the problem of government employees who do business with the state.

We welcome the proposals for the extension of unemployment benefits from 238 to 365 days. We call on government to speedily address the practical issues on this matter and ensure implementation without any delays.

COSATU is concerned by the Minister’s observation that employment creation is mainly the responsibility of the private sector. We are afraid that this approach seeks to absolve the state from its responsibility of providing all its citizens with the means to live a life of dignity as demanded by our Constitution. The raison d’être for the existence of the private sector is profit making, not employment creation.
The extension of unemployment insurance fund (UIF) is welcome, but given the scale of the problem, and obscene surplus in fund, we feel sure that more could be done.
The reference in the speech to 'public sector sustainability' being supported by large social security fund (SSF) surpluses, a fully funded Government Employees Pension Fund (GEPF), and 'improving balance sheets' of State-owned enterprises (SOEs) is problematic. Each of these three elements is actually a problem. SSF surpluses are unacceptable given the scale of need. The GEPF funding is a huge waste of public resources, when a much lower level of funding is accepted in other countries with a young population.
SOE balance sheets reflect the continuing logic of commercialisation and profit, rather than a developmental mandate. This last point also relates to the undertaking to ensure greater oversight over public entities. In the name of accountability and prudence, this could be used by Treasury to stifle necessary spending and developmental strategies.
The budget statement about the increased contribution of corporate tax over last 20 years is misleading. There has been a massive drop since 2008 in proportion of tax contributed by companies, reflecting their massive evasion and avoidance over the last 10 years, including through extensive use of offshore tax havens, as COSATU and Southern African Clothing and Textile Workers' Union (SACTWU) showed in their submission to the Davis commission on tax, and our proposals to combat this.
The reference to the Voluntary Disclosure Programme needs to be explained for what it is - a slap on the wrist for the ultra-rich and corporations who have taken money out of the country illegally, and who are still being allowed to do so.
We welcome the announcement that regulatory and other measures have been put in place to address the environmental consequences of acid mine drainage, and that money has been earmarked for settlement upgrading in mining towns. Towards this end, we call on government to introduce a tax on mining companies to ensure that they, and not the general fiscus, carry the burden of addressing the problem of acid mine drainage.

COSATU welcomes government’s commitment to transform our economy to a low-carbon model. Nevertheless, we remain concerned that the Minister has once again signalled government’s intention to pursue the exploration of shale gas. We note that no appropriate research has been conducted on the environmental consequences of shale gas exploration.

We insist that prior to any exploration licences being granted, sufficient comparative international and local research be conducted, and substantive consultations be held with all interested stakeholders, including the communities where the exploration and possible extraction of shale gas is set to take place.
COSATU is also concerned about the statements made regarding shale gas exploration. This concern is informed by the following considerations: First, research indicates that shale gas exploration requires large amounts water and South Africa is a water-scarce country. Secondly, this process will cause high volumes of underground water contamination. Thirdly, fracking is incompatible with farming / agricultural production. The degradation of agricultural land will cause unemployment and homelessness in the Karoo. Fourthly, shale gas exploration projects have a short life span (about 20-30 years), and preliminary research indicates that South Africa will have to use foreign workers to carry out this form of exploration.

COSATU is also concerned about the over-reliance on the private sector to sustain and develop the renewable energy sector. COSATU will like to reiterate its position on the development of a socially owned renewable energy sector, which is made up of cooperatives, municipal entities and community energy enterprises. More importantly, we caution government to ensure that the regulatory improvements do not contradict the goal of sustainable of development. The new regulatory measures must not make it easier for business to ignore important environmental and socio-economic standards.

COSATU welcomes the commitment to creating a clear and coordinated legislative framework for addressing the challenge of climate change. This includes the proposed introduction of a carbon tax and various regulations to reduce emissions.

COSATU welcomes the commitment to decreasing energy poverty by increasing access to electricity. Another crucial intervention in this regard is the development of the renewable energy sector. This will allow the working class and poor to gain access to clean, affordable and reliable energy.

The massive increase in South Africa’s investment in Africa which the minister praised is a development which needs to be directed in a developmental way, and attached to a continental industrialisation strategy, but there is no sign that this is the case.
Patrick Craven
National Spokesperson
Congress of South African Trade Unions
Tel: +27 11 339-4911+27 11 339-4911 Direct 010 219-1339
Fax: +27 11 339-6940
Mobile: +27 82 821 7456+27 82 821 7456
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