Peoples+Budget+Campaign+on+MTBPS

=**Response on the Medium Term Budget Policy Statement**=

Peoples Budget Campaign, 30 October 2007
The Peoples Budget Coalition notes the Medium Term Budget Policy Statement, tabled by the Minister of Finance. In our view, the budget is best described as being cautiously optimistic. Not only have growth projections been revised downwards, government also projects a surplus for the next three years to 2010/2011. We reiterate our position that monetary policy is partly to blame for the slow down in growth and believe it’s inappropriate for South Africa’s development needs. A one-sided focus on reducing inflation is counterproductive as it negatively affects investment thereby also slow down employment and growth.

The MTBPS continues to provide a policy direction based on an apartheid mineral based economy. There is recognition that the current growth path is at best fragile and a result of fortuitous rather than structural factors. This underlines the need for structural transformation to shift our economy from dependence on export of minerals. Continuing on the current trajectory is not sustainable especially if commodity prices can declined markedly.

Since the MTBPS provides the basic framework and the details will be in the February statement and for that reason we reserve the right to comment. At this stage, there are aspects of the MTBPS that at face value should be welcomed by all. We welcome the following aspects in the MTBPS:


 * the stated commitment to maintain the purchasing power of social grants. However, this does not address our long standing demands to widen the coverage of social grants or indicate a meaningful orientation towards providing a comprehensive social security system.
 * Improved expenditure on skills development and education, particularly early childhood development.
 * Commitment to improving the quality of public services and improved pay for public servants. Still, we need to see more commitment to expand the public service in critical areas of service delivery such as health, education and policing.

We will interrogate these proposals when the details have been availed by government.

We are however, concerned by the skyrocketing costs of the PBMR adjusted to R2.5 billion. This diverts resources to a high capital intensive investment with unclear energy and job creation potential and increasing health and environmental safety risks. In our view, government should spend more on renewable energy. The opportunity cost of spending money on the PMBR is forgone expenditure on education, health care, and economic infrastructure.

We are also concerned that the proposed bail out of SAA should be not be used to force retrenchments in the company. Current estimates suggest that 2000 are on the line in the airline.

Development Indicators
The minister cited the recent Community Survey which shows tremendous, albeit slow progress to provide basic services. The PBC welcomes the improvement in access to water, sanitation, and housing. Nevertheless we believe that there are serious social deficits especially in the former Bantustans that must still be addressed. Furthermore, the costs of these basic services threaten to erode the progress registered thus far. We are painfully aware of the disconnections of water and electricity as many poor people cannot afford the bills. There is a disjuncture between national policy of free basic services and implementation at municipal level. For example, even where a household has been disconnected, the free life line service is also disconnected.

Unemployment and poverty remains a serious problem facing our society. The MTBPS does not signal major interventions to create large scale employment and reduce poverty. Many of the jobs created in the last few years are of short duration and are poorly paid. In this respect, we support the Ministers assertion that we require an effective industrial policy and a coherent poverty reduction strategy.

Macroeconomic Projections
The MTBPS introduces a new concept in managing public finances – structural budget balance. This means that government will plan for a surplus to manage the cyclical revenue or windfall gains from current growth. While on the face of it this seems like a sound policy, we question the wisdom of a budget surplus in the context of large developmental challenges.

It seems government is now moving the opposite direction but with the same intent – macroeconomic stabilisation. That entails moving from deficit to a surplus in its tools of macroeconomic management. Furthermore, we are keen to understand how the surplus will actually be spent. The PBC will have serious concern with such a policy of diverting the surplus to reduce tax burden for the rich.

Having said that, we note that the Revenue to GDP ratio is increased to 27.5% which is higher than the GEAR target of 25%. The PBC welcomes this shift and urge for further reform of our tax system to bring about more relief for the poor in the form of reduced VAT. While we welcome the commitment that cyclical revenue would be used for tax relief for the rich. Whereas the Minister has signalled that the windfall will be used for infrastructure, education, and institutional capacity building, we await the details on where exactly it will be direct to.

Issued by the Peoples Budget Campaign
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