Numsa Submission on the 2014 Mtbps to the Standing and Select Committees on Appropriations

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 MTBPSpresented 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 MTBPSmust be premised on the absolute principle that government priorities and spending mustat 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 340000 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 tonarrow 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 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 thatreduces 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 restraintsare 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 givea greater role than in the past to domestic demand for growth can be pursued by all countriessimultaneously without beggar-thy-neighbour effects, and without counterproductive wage andtax 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:

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.

1. 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)

1. No detailed plan for tax reforms

1. Sale of non-core assets yet to be identified.

1. 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 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.

1. 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

Item / 2013/14 Estimates / 2013-14 Outcome
Defence, public order and safety / 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
Economic Infrastructure / 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
Allocated by function / 1043.2 / 1046.2
Debt-service costs / 100.5 / 101.2
All expenditure / 1143.7 / 1147.4

[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 post-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

Item / 2012/13 Percentage of total exp. / 2013/14 Percentage of total exp. / 2014/15 Percentage of total exp. / 2015/16 Percentage of total exp.
Defence, public order and safety / 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%
Basic education & Post-school education and training / 20.72% / 19.80% / 19.35% / 19.42%
General public services / 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%
Allocated by function / 91.54% / 91.18% / 90.82% / 90.21%
Debt-service costs / 8.45% / 8.82% / 9.18% / 9.41%
All expenditure / 100.00% / 100.00% / 100.00% / 100.00%

[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.

Table 3: Functional Groups Expenditure Growth Rates

Functional Groups / 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
Defence, public order and safety / 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%
Economic Affairs / 10.54% / 3.79% / 4.34% / -2.01%
incl. Employment, labour affairs, and social security funds / 24.10% / 19.01% / 11.28% / 12.81% / 5.48%
Industrial development, trade and innovation / 6.39% / 7.11% / 0.19% / 1.31%
Economic Infrastructure and network regulation / 8.18% / -4.86% / 1.98% / -10.66%
Local development and social infrastructure / 10.87% / 13.15% / 4.67% / 7.35%
incl. Rural development and land reform / 2.97% / 2.88% / -3.23% / -2.92%
Allocated by function / 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%

[Source: Own calculations based on MTBPS 2013, 2014]

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 underfinance 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. 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’.