The better thing to do : Fair Share's response to the 2003/04 Budget
Fair Share is a unit of the School of Government at the University of the Western Cape . Below is Fair Share's response to South Africa 's 2003/04 National Budget.
What the budget contained
Fair Share's response
The budget contains a range of tax cuts valued at about R15-billion rand.
Continuous reduction in tax rates by government (in order to achieve its 25% of GDP revenue target) means that the hamstringing of the state's capability to promote development and build its own capacity for effective pro-poor service delivery.
Low and middle-income earners benefited most from tax cuts.
The vast majority of South Africans receive no tax benefit from this budget as they are not income earners and no tax relief was offered in the form of the VAT zero-rating of an increased list of basic goods.
Tax relief on interest income and the pension industry were announced.
This form of tax relief, whilst aimed at promoting savings, will benefit South Africa 's elite and will be of no benefit to the poor and marginalized. Similarly so with excise benefits on imported cars.
The budget announced a R60 increase in old aged pensions to R700 per month.
The increase of about 9% is below the current inflation rate that is running over 10%. This means that if projected inflation figures are not realized, old aged pensions will be eroded in real terms in the next year.
The budget included an increase in the child support grant to R160 per month and a phased extension of the grant to children in need under the age of 14.
The 14% increase in the grant is likely to amount to a real increase. The grant should have been extended to at least 16 years, the age until which children are required to attend school and thus continue to be dependent.
The housing budget has increased from R4.2 billion to R4.8 billion.
Although there has been a 13% increase in housing development funding, housing subsidy amounts were increased by 27-36% in April 2002. This means that there will be a further decline in the housing delivery rate. It is estimated that the number of subsidies per year over the next 3 years (about 190 000) will be less than the annual growth in the housing backlog (about 200 000). Tax benefits for urban renewal and for non-profit housing provision are welcomed.
The land restitution budget more than doubles (from R391million to R855 million), land reform grants budget decreases from R280 million to R270 million, farmer support and development budget increases from R128 million to R146 million (but is to decrease to R60 million in 2004/5 in terms of the MTEF).
It is commendable that the land restitution programme is being rolled out at an increasing rate, but the rate of rural land reform and small farmer support is insufficient.
In addition to committing government to developing an integrated employment strategy, the budget allocates R1 billion through the MTEF period for labour-intensive community development program as part of the Consolidated Municipal Infrastructure. This is to support infrastructure investment and stimulate economic development.
Direct government involvement is welcomed. National Public Works programs have not seen the creation of sustainable and long-term jobs. Projected investment growth of 6% per annum is not sufficient to overcome the South African unemployment problem. The state should play a more robust role in co-ordinating and 'crowding in' investment.
Issues facing Local Government
Fair Share welcomes the almost doubling of the equitable share allocation to local government from R3.964 billion in 2002/3 to R6.343 billion in 2003/4. However, this may not be enough for municipalities to assist households to access services.
In this regard, we welcome the recognition by government to assist municipalities to enhance revenue-raising capacity. Fair Share would like this process to be more participatory in nature. Proactive planning and greater synergies through the shortening of time lags between planning and release of budgets is welcomed.
The increase of R23.7 billion, with a further increase of R4.1 billion for free basic services over three years is a positive move, but this needs to be measured against the need and backlog currently being experienced.
Whilst a substantial amount of R2.25 billion has been committed to basic municipal infrastructure projects targeted for low income households through the Consolidated Municipal Infrastructure Programme (CMIP), it is insufficient to significantly impact on the existing backlogs being experienced in local government. Of concern is that there appears to be no disaggregation of these funds between rural and urban areas. Thus it is difficult to distinguish between funds allocated for the Urban Renewal Programme (URP) and Integrated Sustainable Rural Development Programme (ISRDP), other than the R 7.7 million allocated in the Growth and Development Programme, of this year's Provincial and Local Government vote.
Municipal debt of R24.3 billion (DPLG – 5 December 2002 ) remains a source of concern for Fair Share in terms of financial sustainability of municipality.
The budget fails to address the needs of South Africa 's most marginalized
The president's State of the Nation address (State of the Nation address, 14 February 2003 ) strongly asserted the duality of the South African economy – one part "modern and relatively well developed… and the other characterized by underdevelopment and an entrenched crisis of poverty".
Government's use of the budget – as its most powerful economic instrument – should reflect clear strategies to overcome this duality by transforming the lives of marginalized people to become part of state-catalyzed economic activity and ultimately formal economic activity.
So far government's emphasis has been on financial stabilization – through GEAR's emphasis on reduced budget deficit and revenue to GDP ratios – this approach, as has been the constant critique of mass-based organizations, is not appropriate for dealing with the duality in the South African economy.
The mild expansions in previous year's budget (such as in 2001 and 2002) have represented a realization that the GEAR targets were overly restrictive, but has not represented a policy shift towards seriously dealing with exclusion and poverty in our economy.
Government emphasis on reducing tax rates for those in the 'developed' part of the economy and the reduction of its deficit to less than 1% of GDP (largely due to poor public sector capacity) flies in the face of a commitment to deliver programmes aimed at uplifting those entrenched in poverty.
Government has patted itself on the back for its stabilization policies, but the hard work of addressing the duality of the South African economy lies ahead. How is this to be achieved: development of the capacity of the state to deliver, improved service delivery to the poor, direct government programmes including large scale public works and development of social infrastructure including responses to AIDS tragedy through programmes for AIDS orphans and community-based care.
Tax breaks do not benefit the majority
Giving tax breaks to the 30% of 'insiders' in the economy, limits government's ability to transform the lives of the 70% of 'outsiders' in South Africa . This self-imposed cutting-back of tax revenues should come to an end. Future gains from resources raised should be used to strengthen government capacity for delivery, particularly at the level of local government where most rural and district authorities do not have the resources to fulfill their mandates.
The supposed stimulatory effects of reducing taxation for 'insiders' does not possess the same potential for addressing the needs of the economy's outsiders as does the collection of revenue and the deployment of that revenue towards poverty alleviation, pro-poor service delivery and capacity development.
Holes remain in social security system
Increasing social spending: government's response to the campaign for a Basic Income Grant (BIG) is to commit itself to a comprehensive social security system, and to increase and extend grants such as the child maintenance grant. Already the BIG campaign is bearing some fruit and its advocates are to be applauded for their tenacity. But, government's response so far is only partial as significant gaps continue to assist particularly for the structurally unemployed who are not part of the system of unemployment insurance. Also one must question why government did not raise the age of the children eligible for the Child Support Grant to 16 as until this age children are required to be dependents, as they should be attending school.