In light of the Annual Budget Speech that presented by Finance Minister Trevor Manual on 15 February 06, Ebrahim-Khalil Hassen, a Senior Researcher at the National Labour and Economic Development Institute (NALEDI), provides us with some insights into civil society’s position, particularly in relation to the People’s Budget Campaign.
Read about this and how government’s new Accelerated and Shared Growth Initiative of South Africa (ASGISA) has adopted some of the recommendations of the People’s Budget Campaign.
Good for Some, Harsh for Many
Market commentators praise the performance of the South African economy. Low inflation, increased revenue collection, a low deficit and improved economic growth are cited as evidence of the praise for our economy. Whilst, these improvements in the economy are nothing to scoff at, they need to be set against social indicators. In particular, the rise in unemployment, inequality and a possible increase in poverty. Based on social indicators it is thus difficult to concur with the view that the South African economy is doing well. It may thus be better to say that the economy works for few, as opposed to the majority of South Africans. Government recognises this challenge. Thabo Mbeki’s opening address to parliament both spoke of the optimism of the new South Africa, but also the challenges of poverty and unemployment. The budget plays a central role in addressing these challenges. The question is whether the budget will deliver on this mandate?
Caution or Robust Redisribution?
Since 2000, the budget has had a moderately expansionary stance. Following the years of excessive fiscal restraint under the Growth, Employment and Redistribution Strategy (GEAR) the increase in the budgets are indicative of government attempting to adopt a greater role in meeting the development challenges. Thus, civil society organisations like the People’s Budget Campaign, a coalition between the Congress of South African Trade Unions (COSATU), the South African Council of Churches (SACC) and the South African NGO Coalition (SANGOCO) have welcomed the budget increases, but called for a more redistributive programme.
Why a “People's” Budget?
The intent of the People’s Budget Campaign is to develop proposals that lead to the rapid realisation of poverty eradication and job creation in our society. This requires government to adopt a significantly more redistributive stance. Recent policy positions indicate that government is adopting such a stance.
The primary reason for government adopting a more active role in the economy is that equity enhances economic growth. The Accelerated and Shared Growth Initiative of South Africa (ASGISA) adopts some of the recommendations of the People’s Budget Campaign, especially increased spending on infrastructure. However, there is room for a more interventionist policy by government in several areas.
What to Expect this Year?
First, Minister Manuel is likely to announce tax cuts. Whilst the business community applauds tax cuts, they occur at a time when schools, hospitals and police stations function with severe and chronic resource constraints. Redirecting taxes to support institutional level restructuring would be an important step to building public institutions.
Second, increased spending on land reform is needed to catalyse rural development. The review of the ‘willing buyer-willing seller’ principle in land reform announced by the President indicates that significant changes in land policy is imminent. The success of these policy changes will, however, hinge on government having resources available for the purchase of land, and for continued rural and agricultural support programmes.
What the People are Calling for
The People’s Budget campaign calls for an increase of both taxes and deficits relative to Gross Domestic Product (GDP). The proposals are for moderate increases in both taxation and deficit levels, that would lead to a significant increase in resources available for programmes aimed at poverty eradication.
A common rebuke for more spending is that government cannot spend the existing resources. However, under-spending only consists of between 1-2% of the total expenditure. More importantly, there are significant and unmet needs in our society.
The Influence of Civil Society
As Trevor Manuel announces the 2006/7 budget, he will reflect on a new urgency in government to deal with the structural features of poverty and unemployment in South Africa. This shift in emphasis from government is indicative of the impact that civil society organisations have had on fiscal policy. The challenge is to strengthen and deepen this direction, to realise the goals of eradicating poverty in one generation. It is only then that all South Africans can both praise and share in the economic performance of South Africa.
- Ebrahim-Khalil Hassen, Senior Researcher, Naledi.