Cosatu wants radical transformation

Cape Town - Cosatu on Tuesday called for radical economic transformation in this year's National Budget.

Minister Nhlanhla Nene will deliver his budget address on Wednesday.

Cosatu spokesperson Patrick Craven said the union federation does not want another austerity budget, but wants the minister to "break with the past and present a transformative" budget.

Cosatu called for a number of government interventions to address unemployment, poverty, and inequality, which included nationalisation, state ownership and a new mandate to the National Planning Commission.

On tax, Cosatu suggested a solidarity tax which would cap the growth earnings of the top 10% and accelerate the earnings of the bottom 10%.

Cosatu's budget expectations statement in full...

The Congress of South African Trade Unions calls on the Minister of Finance Comrade Nhlanhla Nene to break with the past when delivering the 2015/16 National Budget. We remind the minister that the ruling party and Cosatu’s strategic ally, the African National Congress, has resolved that the second phase of transformations should be about radical economic transformation. This calls for the implementation of the economic demands of the Freedom Charter which puts people at the centre of economic development.

The 2013 and 2014 budgets and mini budgets reveal a more brutal reality for the working class. They reveal a reality of massive real spending cuts, after taking population growth into account. The massive reduction in the budget deficit from 4.1% in 2014 to 2.5% by 2017 is achieved through real spending cuts, which can only cause the economy to further stagnate.
 
As we said then in response to the mini budget, “The decline in ‘real growth’ of spending to 1.3% in 2015 (from 10.8% in 2009), is lower than the level of population growth, and therefore a real cut in spending, at a time when we have a desperate need to stimulate our economy, deliver services in underserviced areas, and invest in employment creation.

"This is a disaster! We are following European/International Monetary Fund austerity policies, which have only plunged Europe deeper into crisis, where we should be following the US stimulus approach which is leading to recovery of their economy.”

The radical transformation of the economy requires macroeconomic policy that will make resources available to change the apartheid-colonial structure of the South African economy. It is our view that the usage of the national development plan’s economic policy proposals as the framework for government’s interventions runs against the objective of radical economic transformation.

Unemployment still a huge problem

The fact that the country is still confronted with high levels of unemployment, poverty and inequalities more than 20 years into our democracy supports the call for a different approach to macroeconomic policy. The rate of unemployment is around 36% when using the expanded definition which includes discouraged workers seekers, and young people constitute the majority of those who are without jobs. In the past two decades the rate of unemployment has never been below 20% when using the narrow definition, which doesn’t include discouraged work seekers.

We acknowledge the fact that the number of employed people increased by more than 200 000 in the fourth quarter of 2014, even though the majority of these jobs were created in seasonal sectors – agriculture, construction and trade. This relatively good news of job creation in one quarter was dampened by Statistics SA poverty statistics released in January 2015 which showed that more than one in every two South Africans lived in conditions of poverty.

Government’s own twenty-year review shows that the country remains one of the most inequitable in the world with the Gini coefficient having increased from 0.64 in 1995 to 0.65 in 2010/11. The share of wages in national income decreased from about 55% in 1994 to 51% in 2012.

The government macroeconomic framework must speak to this economic crisis facing the majority of the citizens. The current policies do not speak to this as a reality and have continued with the business as usual approach.

We remain opposed to the Employment Tax Incentive. We view this as a subsidy for labour brokers and employers and that the South African Revenue Service (Sars) has admitted that it does not know if any of the claims were for new or existing jobs, or how many older workers were displace to make way for subsidised youth.

While we appreciate government's desire to alleviate poverty, we remain concerned that the Expanded Public Works Programme and the Community Works Programme have become a source of cheap labour for cash-strapped municipalities and departments and are replacing permanent decent municipal and provincial jobs.

We note that President Jacob Zuma in his 2015 State of the Nation Address (Sona) unveiled government’s nine-point plan for economic growth and job creation and entails the following:

• Resolving the energy challenge;
• Revitalising agriculture and the agro-processing value chain;
• Advancing beneficiation or adding value to our mineral wealth;
• More effective implementation of a higher impact Industrial Policy Action Plan;
• Encouraging private sector investment;
• Moderating workplace conflict;
• Unlocking the potential of SMMEs, cooperatives, township and rural enterprises;
• State reform and boosting the role of state-owned companies, ICT infrastructure or broadband rollout, water, sanitation and transport infrastructure; and
• Operation Phakisa, aimed at growing the ocean economy and other sectors.

The budget statement on Wednesday must at least speak to this nine-point plan and provide resources to adequately support their implementation.

Our assessment of whether government interventions in the economy are radical enough to change the structure of the economy in order to address the triple challenges of unemployment, poverty and inequalities is informed by Cosatu’s 11th National Congress resolutions, which called for the following:

• Decisive state intervention in strategic sectors of the economy, including through strategic nationalisation and state ownership;
• Radical overhaul of our macroeconomic policy to support the radical economic shift as agree to by the alliance;
• Nationalisation and a new mandate to the South African Reserve Bank;
• A new mandate to the National Planning Commission to realign the national development plan in line with the proposed radical economic shift;
• Aspects of the New Growth Path to be realigned in line with the proposed new macroeconomic framework;
• All state-owned enterprises and state development finance institutions to be given a new mandate;
• Urgent steps to reverse the current investment strike and export of South African capital;
• Capital controls and measures aimed at prescribed investment, and penalising speculation;
• The urgent introduction of comprehensive social security;
• Measures to ensure beneficiation, such as taxes on mineral exports;
• Comprehensive land reform, and measures to ensure food security; and
• The more effective deployment of all state levers to advance industrialisation and the creation of decent work on a large scale.

Eskom affairs

Some of the aspects of the nine-point plan outlined by the state president during his Sona have a link with the framework developed by Cosatu’s 11th National Congress, but the devil is in the details and in the implementation. The current energy crisis which the plan prioritises cannot be an excuse for the privatisation of state-owned assets.

We expect the minister to provide more resources to Eskom to enable it to execute its developmental mandate appropriately. The effectiveness of Eskom cannot be measured by the extent to which its balance sheet becomes more profitable, but rather by the extent to which it can provide energy security to the country. We note that the minister has already indicated during his mini budget that Eskom would be given about R20bn to address its financial problems.

More resources should be channelled towards renewable sources of energy. Funding of the renewable energy sector must take into account the importance of developing social forms of ownership, localisation, job creation and enhanced energy access to the working class.

No to nuclear and fracking

We reiterate our opposition to the expansion of nuclear energy generation based on costs and safety considerations in particular. We note with concern that government is steaming ahead with shale gas extraction and our concerns in that regard include water contamination, health effects, greenhouse gas emissions and the destruction of the political economy of the Karoo.

For many years Cosatu has been calling for engagement on a comprehensive social security system for the country but the National Treasury has been frustrating efforts to begin the engagement process by failing to release the discussion document on this matter.

The Minister of Social Development, Bathabile Dlamini, has now indicated that a discussion paper would soon be tabled at Nedlac for engagement. Cosatu therefore expects the minister of finance to reaffirm this commitment during his budget speech. For as long as there is no comprehensive social security system, Cosatu will remain opposed to any policy that seeks to prevent unemployed workers from withdrawing their pension benefits before they retire.

Cosatu is concerned about frequent reports of abuse of state resources meant to deliver services to the majority of our people. We welcome the centralisation of state procurement as announced by the president in his Sona. We hope this intervention will go a long way in curbing the scourge of corruption both in the private and public sectors.

We also hope it will address weaknesses in the state procurement system that result in the country importing more goods that should be sourced locally in order to strengthen the value chain and thus revitalised industrialisation.

Concern about consultants

We expect the minister to provide further details in this regard including progress made in implementing measures announced previously to cut unnecessary costs. There is a need to strengthen the state capacity by “in-sourcing” the services that had been outsourced. Cosatu is concerned by the recent media reports that more than R30bn had been spent on consultants. The Auditor General has also raised concerns about the extensive usage of the consultants but it doesn’t look like the problem is abating.

We note that the minister cautioned in his 2014 mini budget that tax revenue was below the budget projection due slow economic growth and thus the government’s debt continued to rise as a percentage of GDP. We were however encouraged by the minister’s acknowledgement that “increased debt is not in itself a bad thing, if it finances investment in future productive capacity”.

As the minister did, we are also fully appreciative of the fact that the global economy is not recovering at a pace that will help the South African economy to grow faster to help to address the challenges of unemployment and poverty in particular. We are however of the view that that it is of critical importance that government should stimulate economic growth and job creation.

This among others requires the government to spend and invest more, particularly in the infrastructure development programme, and in capacitating the public service and all state institutions. This call runs counter to the current fiscal stance taken by Treasury, which is one of austerity, or cutbacks in real terms.

We will oppose any proposals to freeze vacant posts, which are critical for the improvement of service delivery to the majority of our people. The Nedlac social partners are busy with discussions on the introduction of the national minimum mage (NMW), which is key in the eradication poverty and improving the standard of living of the majority of the working people.

The NMW will also be key in stimulating economic growth as it will help increasing the aggregate demand on the economy. It is in this context that we will oppose proposals not to increase the salaries of the public servants as suggested by the minister in his 2014 mini budget.

Cosatu also expects the minister to allocate more resources to expand and improve the Technical Vocational Education and Training Sector (formally FETs) sector, which will in turn reduce the youth labour force, by extending their stay in the education and training system so that they acquire basic and high-level cognitive skills.

National health insurance must be speeded up

More resources are needed for the implementation of the national health insurance (NHI).

According to our affiliates, the state of the health services in Gauteng and the Eastern (sic) leaves much to be desired. There is a crisis, including shortages of staff, equipment and medicines, which does not inspire any confidence that the promised transformation is on track. We urgently need an efficient, well-resourced, well-staffed national health system which provides the best possible service to all South Africans.

Therefore a medium-term budget to roll out the NHI needs to be announced by the minister, as well as clarity on when the long-delayed white paper on NHI will be released.

Cosatu expects the minister to provide more resources towards the rolling out of the public transport system. There is an urgent need to find alternative model for funding expansion and improvement of road infrastructure. Cosatu remains opposed to e-tolling and hopes that the president will respond to the outcry against e-tolls by scrapping this expensive system.

We expect the state to play a central role by committing sufficient resources to ensure that land distribution is radically reformed in order to meet land redistribution, restitution and reform challenges. We note the concerns expressed by the public over the department of land and rural development agrarian reforms proposals and expect to work with the state to fine-tune that policy.

We urge National Treasury to consider targeted support and incentives for small-scale and emerging farmers as well as for those engaged in agro-processing. Cosatu calls for greater resources allocation towards farm implements, irrigation and pesticides as well as provide support for alternative forms of ownership such as cooperatives and community-based agricultural initiatives.

Infrastructure development is a priority

We also are conscious of the fact that any rural development strategy requires significant infrastructure development in the form of road network, water and sanitation hence our endorsement of the national integrated infrastructure plan. We believe the envisaged infrastructure programme planned for next three to five years will extend to rural economy and serve communities in the countryside inasmuch as it will bolster urban development.

Cosatu notes all the efforts undertaken at tiers of administrative level by both government and non-governmental agencies involved in combating the scourges of crime and corruption. While acknowledging the efforts made and the commitment to fight crime and corruption, there remains a need to consider a broad coordination between and within different institutions making what is called the criminal justice cluster system.

There is insufficient and inequitable resourcing across the criminal justice system, resulting in some under-capacitated (sic) and other over-resourced. The problem of differential capacities must be addressed because it gives rise to uncoordinated processes and a lack of collaboration between various law enforcement agencies.

We expect that in this season’s budget a reflection be made on increasing the resource allocation of police security and safety services, upgrade tools and equipments, and further, train the personnel in competencies required to meet the emergent challenges.

Further, we endorse the recommendation of the De Lange Report on the state of policing and judiciary which indicated that there is need to improve the investigative capacity of police services and support for the judiciary to process cases speedily and effectively.

What tax reforms should achieve

We reiterate our call on the minister to announce a process to introduce tax reforms, which in our view should ultimately result in the following:

• Introduction of progressive tax system, with an introduction of a tax category of the super-rich;
• Introduction of solidarity tax, whose aim is to cap the growth of earnings of the top 10% and to accelerate the earnings of the bottom 10%;
• Introduction of tax on both domestically produced and imported luxury items, but a higher tax on luxury items which are imported;
• Increase in the secondary tax on companies to encourage reinvestment, job-creation and to reduce the financialisation of company assets;
• Imposition of a land tax to aid the process of land redistribution;
• Zero-rating of medicines, water, domestic electricity and public education;
• 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;
• Increase 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 pumps 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;; and
• No increases in VAT, which will hit the poor hardest.

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