International Labour Resource and Information Group Comments on the 2011/12 Budget

 The most notable thing about the 2011/12 budget was the complete disjuncture between the issues raised in Pravin Gordhan’s eloquent introduction, and the measures that followed in the budget itself.

Gordhan spoke about the budget laying the basis for a long-term programme of development, noting that there was a new set of power relations in the world; that there was turbulence in the world of capital flows and (although only indirectly referred to) the uprisings in North Africa; and promised that jobs - particularly for young people - would be a priority. And then delivered a budget in which the cornerstones remain GEAR’s commitment to inflation targeting, free capital flows and that the private sector would drive growth and jobs. Government’s role, as per the philosophy of the budget, is to help businesses to do so, whilst giving the middle classes income tax breaks so that they can spend their own money on private education and private medical care. The formula for the working class and poor majority is largely confined to topping up the social grants.

Gordhan, like his Finance Minister predecessor, Trevor Manuel, used to do, spoke less to the people and more to the markets, assuring them that there will be macro economic stability and fiscal discipline despite the talk of a “new growth path”. The contours of South Africa’s neo-liberal project have already been laid and the budget merely tinkers with the details. All the flagships of what was supposed to be the Zuma project’s difference with Mbeki - decent work, service delivery and the National Health Insurance - were spoken to within the framework of these neo-liberal spectacles.

On “decent work” he repeated Zuma’s State of the Nation address that R9b would go to the IDC for innovative projects and that Big Business would be given R20b worth of tax breaks as an incentive for creating jobs. This was not complemented by any commitment to increasing jobs in the state sector itself – in service delivery, in health, in education. Instead he took digs at the trade unions and striking public sector workers of 2010 by emphasising that the public sector wage bill had doubled – as if this were an intolerable burden. He failed to address the fact that service delivery is about workers, plant and machinery in the public sector; fixing and maintaining water pipes (of which there can be as much as a 50% loss of water at night), cleaning and removing sold waste; and filling the 40% of job vacancies in the health sector.

He spoke about government’s commitment to the NHI and then placed the whole initiative at risk by posing the question: where’s the money going to come from? And then, almost in passing, raised the spectre of that most regressive, most anti-poor of taxes - VAT - being increased.

These are the consequences of the commitment to tight fiscal discipline; giving businesses tax breaks, cutting income tax by R8b and then slowing down government spending over the next 5 years, as his budget commits.

A notable feature of this budget was however his approach of raising an issue, and the referring it for further discussion. One suspects that this is the politics of the Zuma-coalition’s ascension into power creeping in. This occurred in two instances - the Youth Subsidy and the, very oblique, reference to capital controls as carried out by SA’s BRICS partners (Brazil, India, Russia and China).

On the youth subsidy Gordhan went on to revive the idea of a R5b youth employment subsidy, which had, correctly, been attacked by COSATU for being an incentive for employers to cut working conditions for workers and institute a 2-tiered labour market. The DA was going to make this its flag ship but Gordhan has got there first. To soften the blow he referred the matter to a NEDLAC discussion, thereby softening COSATU’s likely angry response.

On capital controls, he correctly identified the currency volatility in the world as a major problem for stability and noted how the rand had been driven up by events - the global crisis, the USA’s policy of near-zero interest rates and printing money - beyond our control, and then noted that Brazil, Indonesia and Taiwan have begun to tax capital flows. These countries are doing so because their currencies are being driven up, and free capital flows can be disastrous for a country if massive inflows are suddenly turned round, as happened in Argentina in 2003.

Inflows into South Africa over the last 12 months have largely been into bonds (where investors buy government debt) – driving up the rand and increasing South Africa’s debt from R526b to R1.3 trillion over that period. It is significant that debt-servicing is the biggest item in the budget and this threatens whatever long-term plans South Africa may have. But, given that he was speaking to the markets, who do not want to hear any talk of restrictions on their speculative activities, and given that he had already promised more exchange control relaxations in his 2010 Medium Term Expenditure Framework, he merely referred to the need to discuss this matter at some stage. This may well be, once again, a sop to elements within the Alliance who have expressed concern about the tension between government’s commitment to an industrial strategy and the vulnerability of SA to sudden capital flows.

But leave aside the willingness to float discussions, the charm and humour, then this was vintage Trevor Manuel.

Leonard Gentle
International Labour Resource and Information Group

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