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NUMSA SUBMISSION ON THE 2014 MTBPS TO THE STANDING AND SELECT
COMMITTEES ON APPROPRIATIONS
27 OCTOBER 2014
Introduction
The National Union of Metalworkers of South Africa (NUMSA) welcomes the
opportunity to engage with government on the 2014 MTBPS presented to parliament
on the 22 October 2014. The MTBPS is a critical policy statement because it outlines
the manner in which the government intends to address the harsh realities and
conditions of poverty, unemployment and inequality that the majority of South
Africans confront on a daily basis. It is without question that the MTBPS must be
premised on the absolute principle that government priorities and spending must at
all times be fundamentally geared towards reducing unemployment, poverty and
inequality.
Fiscal Consolidation
NUMSA notes that the Minister wants to grow the economy by 3% by 2017, reduce
the budget deficit from 4.1% this year to 2.5% over the next three years and has
mentioned several areas that are currently undergoing what he calls ‘structural
transformation’ (manufacturing, agriculture, mining, energy, regional investments,
transport and communication and the financial sector). Like his predecessors the
Minister has sent a clear message that ‘fiscal consolidation can no longer be
postponed’ and has put in place several measures to:
-
Lower consumption
Promote higher savings
Increase productive investment
Paradoxically, ‘doing more with less’ does little to vindicate his sentiment that the
budget will ‘not be balanced on the backs of the poor’ and spending cuts forecast
over the period of the MTEF will certainly impact negatively on social spending and
service delivery (MTBPS, 2014)
By government’s own admission we accept that there is an urgent need to ‘repair
dysfunctional municipalities’ and institute proper management of supplies to schools
and hospitals. However, as a trade union that represents over 340 000 members in
the manufacturing sector we do not believe that the country can be built on the basis
of commitments alone and that a radical reconfiguration of our economy is required
based on more public ownership of our natural resources and the redistribution of
wealth that underpins both the Freedom Charter (1955) and the Reconstruction and
Development Programme (1994) as the basis of our economic freedom. In this
context NUMSA has repeatedly called for more state intervention in the economy
and for the country to adopt a developmental agenda that is consistent with the
objectives set out in the Freedom Charter and the RDP. Over the years
metalworkers have repeatedly called for the more state control over the South
African Reserve Bank (SARB), scrapping of high interest rates, tighter exchange
controls and the removal of inflation targeting as an instrument to stabilise prices.
NUMSA believes that increased public spending is necessary to sustain growth in
areas of education, health, housing and transport and that industrial and trade policy
should not be delinked from patterns of state spending in critical sectors of our
economy.
In outlining proposals for the fiscal policy framework the Minister has called for the
need to narrow the deficit in order to stabilise public debt. Although the budget deficit
is expected to decline from 4.1per cent in the current year to 2.5 per cent in 2016/17
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we need to ensure that such a decrease does not compromise our huge
developmental needs which are yet to be met. Such a policy pronouncement is
inappropriate in the prevailing challenging economic environment that the country
finds itself in. During an ongoing crisis of the sort we remain within, deficit spending
should rise to make up for a stagnant private sector by all accounts and in order to
ensure the country delivers on its socio-economic mandate to eradicate poverty,
inequality and unemployment.
The NDP
Recently the South African Reserve Bank raised interest rates (repo = 5,750%) to
prevent the further weakening of our currency. However, relaxation of exchange
controls, deregulation of the markets and the banks preoccupation with international
credit rating agencies confirm that the country is well on its way to implementing the
National Development Plan.
The MTBPS makes it abundantly clear that the NDP is being firmly entrenched as
the bedrock of the country’s fiscal policy framework. This is in spite of the fact that
the NDP seeks to perpetuate the failed neo-liberal macroeconomic policies which
have been pursued since the inception of GEAR. In the foreword of the MTBPS
‘government proposes a fiscal package that reduces the expenditure ceiling and
raises tax revenue over the next two years’ (MTBPS, 2014: iii).
The adoption and bulldozing of the NDP as the bedrock of the country’s
development strategy will guarantee the further de-industrialisation of the South
African economy which is extremely disappointing. After 20 years of democracy we
have witnessed the liberalisation of our economy and the imposition of several
macro-economic policies that have continuously called for wage restraint, the
deregulation of the market, labour flexibility, use of labour brokers and the erosion of
collective bargaining gains. For some the material benefits after apartheid have just
got better but for the vast majority of South Africans income levels have widened
followed by rising levels of unemployment, poverty and socio-economic exclusion.
Further, the Minister has called for ‘prudent management of the public sector wage
bill’, while funding of new posts must come from existing allocations and natural
attrition (MTBPS, 2014). Such a call for wage restraints are not new and have
already been made by the International Monetary Fund (IMF) in its country Article IV
report (2013) and appears to be well supported by Treasury.
Unlike the IMF report, the Trade and Development Report 2013 released by the
United Nations Conference on Trade and Development (UNCTAD) presents a more
balanced analysis of the global economic crisis and its impact on both developed
countries as well as on developing and transition economies. In outlining the pitfalls
of export led growth, the UNCTAD report argues that ‘development strategies that
give a greater role than in the past to domestic demand for growth can be pursued
by all countries simultaneously without beggar-thy-neighbour effects, and without
counterproductive wage and tax competition’. The report is critical of some of the
short term measures such as ‘compression of labour costs and fiscal austerity’ that
have been adopted by many of the world’s leading economies and argues against
proposals for ‘more flexible labour markets, lower social security coverage and a
smaller economic role for the State’.
In its 2014 report UNCTAD argues that liberalised markets have failed dismally:
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Yet, almost everywhere in recent years, the spread of market liberalism has coincided with
highly unequal patterns of income and wealth distribution. A world where its 85 wealthiest
citizens own more than its bottom three and a half billion was not the one envisaged 50 years
ago.
According to the 2014 report a balanced-growth scenario should have the following
elements (UNCTAD 2014: v-vi)
-
incomes policies to support growth of demand on a sustainable basis
growth-enhancing fiscal policies
industrial policies to promote investment and structural transformation
regulation of systemically important financial institutions and capital controls to stabilize
global financial markets
development-oriented trade agreements.
NUMSA believes that it is important to have a sense of the different approaches to
development policy given that the policy choices of our government have yet to yield
positive results.
Having said this, NUMSA would like to highlight some of its key concerns with the
2014 MTBPS:
1. A key concern of our union is that the MTBPS remains grounded in the
country’s conservative macro-economic framework (GEAR) and that there is
this gradual, piecemeal approach towards eradicating poverty, unemployment
and inequality.
2. Minister Nene says restraining expenditure growth will not compromise front
line services and that funding for free basic services will continue. However
we say that service delivery will be affected in terms of freezing government
posts and posts not being filled. But we believe that it will have an effect in the
following ways as well:
-
-
-
Reducing wage bill in public sector will have a negative effect on job
creation. This reflects a fundamental lack of understanding of the demands
associated with the developmental function of the public service. NUMSA
believes that for public service employees to be effective not only should
salaries be acceptable, but there is also a need to ensure that the many
vacant posts are filled in the public service.
Withdrawing funding for long term vacant posts will not address the issue,
considering the current rate of unemployment being 36,8% (expanded
definition - Stats SA 2nd QLFS 2014)
Also a definite hint for no pay increase for public servants and alternatives
could mean further job cuts. (Only inflation related salary increases to
maintain the buying power of public servants it seems, would remain)
3. No detailed plan for tax reforms
4. Sale of non-core assets yet to be identified.
5. We foresee a tacit Mild Fiscal Cliff since the outcome of increase in taxation
and decrease in government spending, will result in negative implications for
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the poor. Will the tax be progressive or regressive; if regressive (using vat) it
will further take its toll on the poor. We will have to deal with unintended
consequences of crime, health statistics etc. due to these austerity measures.
6. Changed lines of expenditure
-
The consolidated government expenditure table of the Budget has
changed significantly within the space of one year. The Function groups of
the budget have been rearranged in a matter that limits a comprehensive
comparative analysis. A previously named function “education and related
functions” has transformed itself into “Basic Education” and “Post-school
Education and Training”. The group called “Science and technology and
environmental affairs” and “Economic Services” have been removed from
the list”. The content of an item previously called “Economic Infrastructure”
along with the item “Local government, housing and community amenities”
have undergone tremendous changes. Considering these facts a full
dynamic analysis of the budget requires an understanding of these
functional changes in the context of overlaps and additional functionalities.
-
Whether it was an intention of the Ministry to change the functional groups
so as to limit the scope of the comparative analysis remains unknown.
However, for the purposes of both the public and the state it is vital that
classifications remain the same.
Table 1 .Comparable Expenditure functions 2013/14 Estimates vs. 2013/14 Outcomes
2013/14
Estimates
Item
Defence, public order and safety
2013-14 Outcome
154.5
153.9
Defence and state security
44.9
45.0
Police Services
74.1
74.2
Law courts and Prisons
35.4
34.7
84.3
68.5
Basic education & Post-school
education and training
233.6
227.2
Employment, labour affairs, and
social security funds
50.6
48.4
General public services
62.1
63.4
Health
133.3
134.2
Social protection
132.7
131.2
1043.2
1046.2
100.5
101.2
1143.7
1147.4
Economic Infrastructure
Allocated by function
Debt-service costs
All expenditure
[Source: MTBPS, 2014]
First, the current budget should account for the differences in the estimates and the
outcome of the year 2013/14. Judging from the table 1, the expenditures on the
defence, public order and safety, economic infrastructure, basic education and postPage | 4
school education and training, employment labour affairs and social security funds,
as well as on social protection have been lower than anticipated. The listed items are
vital for the social prosperity of the country. However, they are the ones to be cut.
Table 2: Function Groups as a Percentage of Total Expenditure
2012/13
Percentage
of total exp.
2013/14
Percentage
of total exp.
2014/15
Percentage
of total exp.
13.59%
13.41%
13.14%
12.77%
Defence and state security
3.96%
3.92%
3.84%
3.72%
Police Services
6.52%
6.47%
6.29%
6.13%
Law courts and Prisons
3.11%
3.02%
3.01%
2.91%
20.72%
19.80%
19.35%
19.42%
Item
Defence, public order and safety
Basic education & Post-school education
and training
General public services
2015/16
Percentage
of total exp.
5.55%
5.53%
5.38%
5.08%
Health
12.08%
11.70%
11.67%
11.50%
Social protection
11.78%
11.43%
11.50%
11.53%
Economic Affairs
N/A
15.37%
15.64%
15.06%
incl. Employment, labour affairs,
and social security funds
3.74%
4.22%
4.62%
4.77%
Local development and social infrastructure
N/A
13.87%
14.14%
14.85%
91.54%
91.18%
90.82%
90.21%
8.45%
8.82%
9.18%
9.41%
100.00%
100.00%
100.00%
100.00%
Allocated by function
Debt-service costs
All expenditure
[Source: Own calculations based on MTBPS 2013, 2014]
Table 2 illustrates the percentage of total expenditure that is allocated to the
particular functional groups. While government claims that improving lives of ordinary
South Africans and improving social services is the main goal of the budget, it seems
like the percentages allocated for police services, law courts and prisons, education,
general public services and health are on a steady decline. At the same time the
debt-service costs are rising disproportionately.
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Table 3: Functional Groups Expenditure Growth Rates
Growth
rate,
2013/14
vs.
2012/13
Projected
growth
rate,
2014/15
Projected
Growth
rate,
2015/16
vs.
2014/15
Real
Growth rate
2014/15
Real Growth
rate 2015/16
8.61%
6.50%
4.70%
0.30%
-1.10%
Defence and state security
8.96%
6.44%
4.38%
0.24%
-1.42%
Police Services
9.12%
5.80%
4.97%
-0.40%
-0.83%
Law courts and Prisons
7.10%
8.36%
3.99%
2.16%
-1.81%
Basic education & Post-school education
and training
5.14%
6.21%
8.16%
0.01%
2.36%
General public services
9.50%
5.84%
1.79%
-0.36%
-4.01%
Health
6.51%
8.42%
6.25%
2.22%
0.45%
Social protection
6.75%
9.30%
8.02%
3.10%
2.22%
10.54%
3.79%
4.34%
-2.01%
19.01%
11.28%
12.81%
5.48%
0.19%
1.31%
1.98%
-10.66%
4.67%
7.35%
-3.23%
-2.92%
Functional Groups
Defence, public order and safety
Economic Affairs
incl. Employment, labour
affairs, and social security
funds
24.10%
Industrial development, trade
and innovation
6.39%
7.11%
Economic Infrastructure and
network regulation
8.18%
-4.86%
10.87%
13.15%
2.97%
2.88%
9.58%
8.26%
7.05%
2.06%
1.25%
Debt-service costs
14.87%
13.14%
10.48%
6.94%
4.68%
All expenditure
10.02%
8.69%
7.77%
2.49%
1.97%
Local development and social
infrastructure
incl. Rural development and
land reform
Allocated by function
[Source: Own calculations based on MTBPS 2013, 2014]
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The growth rate of government expenditure is expected to be 8.69% for 2014/15,
and only 7.77% for the 2015/16. Taking into account the government CPI inflation
projections of 5.8% (2013), 6.3% (in 2014) and 5.9% (in 2015), the real growth rate
of government expenditure will only be around 1.87 – 2.39 percentage points. In a
developing country such as ours with massive unemployment levels (36,8%
expanded definition - Stats SA 2nd QLFS 2014) and massive gaps in education and
service delivery, one can hardly expect the budget to deliver meaningfully on
economic transformation.
What is even more disconcerting is the fact that expenditure growth rate for some
functional groups e.g. police services, education and general public services is less
than inflation. This means that these functional groups will receive less and less
funding in terms of real money. Choosing to under finance these services is going to
lead to increases in corruption, crime rates, exacerbate poor matriculation
performance followed by a general deterioration of a number of sectors of the
economy.
Electricity Pricing
The discrepancies in electricity pricing between Eskom and municipalities require
urgent attention. For many municipalities the situation has become untenable, e.g.
Ratanda/Heidelberg, KwatsaDuza (Kwatema, Tsakani, Duduza), Greater Germiston
and Mpumalanga (Gert Sibande Municipal District). NUMSA believes that
government has to implement measures to:
- Harmonise tariffs
- Ensure that electricity is affordable
- Increase the amount of free basic electricity 50kwh - 100 kwh
Health
A Factsheet on the Non-Negotiable Budget Items in the Provision of Public Health
and HIV/AIDS Services in South Africa (Shezi, et al. 2014 ) says that the National
Health Council (NHC) introduced the so-called ‘Non-negotiables’ (NNs) in health
sector spending to ensure that priority interventions are adequately funded and
implemented. However, according to the researchers (citing Day and Daviaud, 2014)
spending on health goods and services grew by only 4% whilst spending on
personnel grew by 12%.
This is totally inadequate given the pressing problems of HIV/AIDS, tuberculosis, etc.
Labour
We take exception to the remark that ‘labour disruptions’ are amongst the reasons
for our poor economic growth rate. Exercising our constitutional right to strike should
not be labelled as ‘labour disruptions’ and over the last few months the President
and several Ministers have launched a persistent attack on the working class and
our constitutional right to strike. Workers, including communities have a right to
protest against the rising socio-economic inequalities that has made the country one
of the most unequal societies in the world.
Problems with Procurement
In response to the February 2014 Budget the union was pleased with the
announcement that the rollout of the infrastructure programme will be “accompanied
by programmes to support the local manufacture of components, ranging from buses
to energy components” in order to support this industry and create more decent jobs.
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The union has long advocated for greater support to be provided to key sectors of
the economy in order to ensure the improved competitiveness of these sectors.
However, the 2014 MTBPS is weak on issues of procurement, local content and
local production in spite of assurances that the Ministry plans to implement rigorous
procurement reforms. In NUMSA we are aware that the awarding of rolling stock
contracts to Chinese and local BBBEE consortiums by PRASA and Transnet could
potentially harm the local industry leading to the loss of jobs.
Such conduct undermines the procurement accord signed by social partners,
government included, in order to ensure the growth of the local industry and the
creation of decent employment. It is unacceptable that our tax monies can be used
to export jobs that the country is in desperate need of. Therefore any further
infrastructure allocations must strictly adhere to local content requirements.
Both the Department of Trade and Industry and Treasury agree that national
procurement policies and regulations are being flouted. NUMSA would like to see
Minister Nene take a harder stand on those who breach procurement regulations. In
a recent article that appeared in Engineering News (12 September 2014) Minister
Davies indicated that he would like the “Auditor General flag as ‘irregular
expenditure’ any flouting of buy-local procurement rules by government
departments and State-owned companies”. It remains to be seen what steps
Treasury will implement to curtail what Minister Davies calls ‘irregular expenditure’.
Renewable Energy
Whilst NUMSA welcomes the increased funding for the Green Fund we want to
reiterate that government must ensure that its renewable energy programme benefits
the working class and the poor, which has previously not been the case. For
example, in the Solar Water Heaters (SWH) project municipalities dished out
contracts to companies that rely on imported rather than locally produced units and
components. At the end of January this year 60 workers were retrenched at a local
SWH manufacturing plant in Gauteng in spite of the assurance that government is
moving from rebate to bulk local procurement of SWH as part of an effort to improve
the localisation of components. The designation of SWH by the DTI appears to be
taking a backseat. This kind of conduct flies in the face of commitments given by
several government departments to roll out 1 million SWH by 2014, consolidate our
local SWH industry and create decent work opportunities in the emerging renewable
energy sector.
Governments’ wasteful expenditure
We welcome the measures in the Budget to reduce costs and eliminate wasteful
expenditure. The proposed measures to reduce expenditure such as travel and
catering costs will ensure that government departments no longer squander tax
payers’ monies on frivolous expenses. Although these proposed measures are a
welcome step in the right direction, we believe that they are minimal and that more
severe measures are required to deal with the far more pressing problems of
corruption, fraud, misappropriation of public funds and non-compliance with
procurement policies and regulations.
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Fighting Crime and Corruption
According to a report published by Corruption Watch1, 5485 reports of alleged
corruption were received since the organisation was launched in January 2012, and
2262 reports were received in 2013 ‘with a marked improvement in overall reporting
quality’. The report highlighted corruption in government, as well as the top four
sectors in corruption reports in 2013. While schools topped the list as the most
corrupt sector (38%), irregularities in the procurement process, embezzlement of
funds, school governing body maladministration and corruption in employment have
put our schools at risk.
NUMSA would like the Minister to take note of the words of David Lewis, the
Executive Director of Corruption Watch:
But very troubling dark spots remain ... those who have followed the Nkandla saga, or the
doings of Minister Tina Joemat-Pettersson or the former Minister of Communications , Dina
Pule, will conclude that with the right political connection you could get away with anything.
(Corruption Watch Report, www.corruptionwatch.org.za )
Job Creation and Youth Tax Incentive
On Tuesday 23 September 2014 representatives from Treasury briefed the Public
Finance Monetary Policy Chamber / Labour Market Chamber in NEDLAC on the
ETIA. Treasury reported a figure of 211,000 jobs. It became clear however that this
was, by its own admission, “an estimate”. They apparently took tax information and
divided the retained tax by the number of applications. They then reported and this
came from a monthly form that employers complete and they believed they would
get more information from the bi-annual tax return.
We were then informed that, it would still be soft information since tax details are
confidential. They are clearly not going to do any proper independent research.
They also, of course have no method of determining deadweight jobs. These are
jobs that would have been created without the subsidy. However if you take their
initial document and the ratio of jobs created to net gain it was approximately two
deadweight jobs to one new job.
If you then accept (which we do not) their figure of 211,000 jobs, only about 75000 of
them were new jobs.
Government was also unable to explain why the unemployment rate amongst this
age group was rising each quarter.
The press report on the uptake by labour brokers was also raised sharply with them.
The response was very telling. They said that it was of course against the “spirit of
the Act”, but not unlawful! Why they think that capitalism will somehow act in a moral
manner when a hand-out, that costs nothing is given to them, says much about their
understanding of the labour market and capitalism.
R1.2billion has been spent up until end of August, that is money that no longer goes
to the fiscus but to the pockets of capitalism, and they can give no information on the
following: sectors, number employed, number of new jobs; type of job; geographical
area; number of workers displaced; to name but a few.
Even though Statistics SA does not measure employment of people from 18 to 29
years old, it captures employment data of those aged between 15-24 and 24-34. If
the youth tax incentive was favourable either one or both of the categories of
employment would have increased. However, compared to the last quarter of 2013
1
The Corruption Watch Report Rip off the Corruption Tag, www.corruptionwatch.org.za
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there are less people employed between the ages of 15 to 34 and the unemployment
rate increased by an average of 2.75%. NUMSA reaffirms its opposition to the ETIA
and calls on government to scrap this false solution as a matter of urgency.
Conclusion
NUMSA has consistently called on government to implement policies that are in line
with our demands in the Freedom Charter and we will continue to organise the
working class and social formations to join us in this struggle for social and economic
justice.
Reference
1. Corruption Watch Report Rip off the Corruption Tag [Online] Available:
www.corruptionwatch.org.za Viewed 03 March 2014
2. IMF 2013 IMF Country Report No. 13/303 South Africa 2013 Article IV Consultation
3. MTBPS 2013
4. MTBPS, 2014 (Full document)
5. Shezi, S Chiwire, P & Ndlovu, N 2014 Factsheet on the Non-Negotiable Budget Items in the
Provision of Public Health and HIV/AIDS Services in South Africa
6. Stats SA 2014 2ND QLFS
7. UNCTAD 2014 Trade and Development Report 2014, UN Geneva
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