Medium Term Budget Policy Statement 2009: Public Hearings; Day 2: Business, Labour & Civil Society

Meeting report

Medium Term Budget Policy Statement (MTBPS): Public hearings
Federation of Unions South Africa (FEDUSA) submission
Ms Gretchen Humphries, Deputy General Secretary, FEDUSA presented FEDUSA's views on the economic outlook arising from the MTBPS 2009. It could be deduced from the MTBPS that government would follow strategies that were in line with best practice in fast growing countries. These would include allowing the free movement of goods and services and foreign exchange between countries, macroeconomic stability by keeping inflation low and moderate budget deficits, and finding the proper role for the government and private sectors. FEDUSA was convinced that it would be in the best interests of South Africa if the private sector was producing goods and services while the government sector supplied the necessary infrastructure, on a sustainable and timely basis, to underpin economic development. FEDUSA supported the stance taken on supporting the recovery and transforming the economy as outlined in the MTBPS 2009, identifying key challenges such as unemployment, hunger and poverty.

FEDUSA examined the international impact on the South African economy. It noted that the initial financial crisis had become a real economic crisis. It noted the falling revenue and the necessity of a deficit to accommodate this. FEDUSA suggested tax cuts for the private sector. It pointed out the large increase in the public sector salary bill and the admitted fact that this was not sustainable in the long-term. Broadly, FEDUSA stated that a combination of tax cuts and expenditure increases would be more easily reversible than exclusive expenditure increases. FEDUSA was of the opinion that bringing down the budget deficit would require decreasing expenditure and increasing growth prospects.

FEDUSA commended government on the well-timed co-ordination of monetary and fiscal policy, as well as the clear development of South Africa's macroeconomic strategy. This was a key to maintaining confidence in fiscal solvency, price stability and financial stability. The focus on socio-economic programmes in the MTBPS 2009 covered employment creation, and FEDUSA agreed that an urgent response was needed to the job losses. It was pleased with the MTBPS' approach to education and skills development and the extension of the social safety net.
 
FEDUSA was concerned about the division and definition of functions within the Presidency and also expressed concern that the economic predictions on which the MTBPS was premised might not materialise.

Specific comments on allocations on the adjusted estimates of 2009 national expenditure focused on the extra spending incurred for establishment of new department and "perks and privileges of executive office" as well as on the Departments of Home Affairs, Public Works (Land Audit), Education, Health (HIV/AIDS), Labour, Justice and Constitutional Development, Police, Communications (SABC allocation) and Public Enterprises (South African Airways).

The key economic policy priority for the 2010/11 fiscal years was to maintain supportive fiscal and monetary policies until the recovery was well on its way, even though policymakers must also begin preparing for an eventual unwinding of expenditure used to stimulate the economy in the recession. A too-early withdrawal of stimulus could be risky. The development of a macroeconomic strategy beyond the crisis was however a key for maintaining confidence in fiscal solvency and for price and financial stability and would bode well for managing this challenge.

Business Unity South Africa (BUSA) submission
Prof Raymond Parsons, Deputy Director, BUSA, noted that the key question was where South Africa’s economy would be in February 2010, when the Budget 2010/11 would be tabled. The factors that would cushion the impact should be identified now. He suggested that South Africa's response should be contained in three areas: fiscal policy (MTBPS and main Budget), the framework response to global economic crisis (Presidency and National Economic Development and Labour Council (NEDLAC) and monetary policy (interest rate adjustments). He noted that increased taxation was likely to depress economic growth. As the economy was projected to growth at about 2% in 2010, government spending had to be managed in the years ahead to avoid an increase in taxation.

BUSA cautioned against the use of stealth taxes such as special levies or taxes to increase revenues because of the unpredictable impact on fiscal policy. He referred specifically to the possible taxes to be levied for Eskom and the SABC. He said that a more co-ordinated approach was needed for administered prices, such as the Eskom tariff. This impacted on the inflation outlook. Specifically, a funding model was needed for Eskom, and BUSA would address this in its submission to the National Energy Regulator of South Africa (NERSA) about Eskom's application for tariff increases. There was broadly a need to look beyond the cyclical issues and focus on the long-term structural issues, employment creation and income inequality. Referring to the Minister of Finance's five strategic points, he stated that these objectives would be easier to attain on a high growth climate.

Broadly, BUSA saw the MTBPS as an essential framework for the main budget in February 2010, as it provided the degree of predictability and certainty needed to enable South Africa to respond successfully to new economic challenges.

Discussion
Dr D George (DA) referred to FEDUSA's comment on the increase in public sector salaries and asked whether these increases should be linked to productivity. He asked if the employees in the public sector had an unfair advantage.

Ms Humphries responded that the recent Occupation Specific Dispensation (OSD) discussions had focused on ensuring that public sector productivity was in line with international best practices. Currently there was an overhaul of performance management systems in the public sector and the specific unions concerned were involved with that. The public sector had to be the best employer for workers and remuneration had to be efficiency and performance related, as this would affect service delivery.

Dr George referred to the training lay-off plan and asked whether this initiative was working.

Ms Humphries replied that this was a result of the President's Leadership Task Team in which FEDUSA participated. Participants in the National Economic, Development and Labour Council (NEDLAC) had decided that economic recovery was critical and the training lay-off scheme was also agreed to. It was still new and its success could only be determined once it was fully implemented. This scheme would provide people with training if they became unemployed, to assist them in entering employment in future.

Dr George stated that BUSA had referred to corruption in the public sector and noted that it was also present in private sector transactions with government. He asked what business was doing about corruption.

Prof Parsons replied that BUSA was very active in the National Anti-Corruption Forum and BUSA had decided to introduce a code at its conference on corruption. BUSA would finalise this code and issue it to its members in the near future.

Dr George noted that State Owned Enterprises (SOEs) had a different financing model. Corporatisation was a problem as SOEs were to obtain guarantees from the government and the taxpayers and still award large corporate bonuses. He wondered whether SOEs should be public or privatised.

Ms Simi Siwisa, Economic Policy Director, BUSA, replied that SOEs were enabling entities that enabled South Africa to develop infrastructure to grow. BUSA did not see SOEs as profit maximisation organisations. SOE employees should be appropriately remunerated but should bear in mind that working for the State was essentially a form of doing a national duty and therefore the SOEs could not compete with organisations whose sole objective was to maximise return on profits. It was important to remind SOE executives of the mandate of SOEs.

Mr N Koornhof (COPE) referred to BUSA's conclusion that stated that "innovative measures …can bolster the competitiveness of our economy". He asked if BUSA could offer examples on what these innovative measures would be.

Ms Z Dlamini-Dubazana (ANC) noted the competing objectives of social need versus profit motive and asked how South Africa could achieve a balance between the two.

Ms Humphries replied that SOEs were publicly accountable, as they were largely funded using taxpayers' money to benefit the country.

Prof Parsons replied that it was clear that the current SOE business model was no longer operative. Government would have to look at the funding model in the short-term and how SOEs should be structured in the long-term. BUSA would present other funding options for Eskom. In the long-term, restructuring was essential, as South Africa could not continue from one SOE crisis to the next. One common thread in BUSA's analysis of SOEs was that they had to make more use of Public Private Partnerships (PPPs) in creative manners.

He pointed out that the Accelerated Shared Growth Initiative for South Africa (ASGISA) and Harvard reports had commented on the lack of competition in South Africa. Levels of competition were simply not high enough to support the productivity levels that were needed. BUSA supported these views and was of the opinion that there were a number of ways to intensify competition, ranging from a tightening of the Competition Act, a more proactive role for the Competition Commission, and encouraging foreign direct investment. In regard to confidence, South Africa had to be more optimistic. BUSA felt that the MTBPS was the kind of speech that boosted confidence, as it spoke to managing public finances properly, anti-recession measures and laying the foundations for a higher growth path in the long-term. It would further boost confidence to see these plans implemented and reinforced in the budget for 2010/11.

Ms Dlamini-Dubazana asked what BUSA and FEDUSA offered to contribute to government' s five key deliverables.

Ms Dlamini-Dubazana asked FEDUSA to clarify its comment that both the private sector and public sector should do what they did best, which, for the private sector, would imply supplying goods, while the government supplied infrastructure. She was of the opinion that some of these functions overlapped between government and business.

Ms Humphries replied that this was all about efficiency, and how to achieve that efficiency within a certain timeframe. The key to delivery was the provision of infrastructure and labour and other inputs had to be done on time. Government needed to get those dynamics right through performance appraisals. The private sector had to supply goods and the necessary skills and assist government in areas where there were gaps. FEDUSA had had success in these kinds of discussions with business and other role players at NEDLAC level, shown in changes to national legislation.

Ms Siwisa responded that fiscal policy could not be expected to solve all the problems. Fiscal policy should be used as an anchor to encourage investment into the South Africa economy. While confidence was important, BUSA submitted that regulatory burdens on businesses had to be reduced and that any policy pronouncements should create credibility on where South Africa was going. South Africa business recognised that their fate relied on investment in the communities in which they operated, and in developing the South African population to ensure market growth. For example, businesses in the agricultural sector had good ideas on rural development and had been in touch with the Ministers of Agriculture and Rural Development and they had actively sought ways to improve the relationship between business and government.

With regard to HIV/AIDS and health, BUSA welcomed the debate on the NHI and health sector reforms. It believed, in most instances, that the right partnership between the public and private sector would be able to optimise outcomes. The private sector was not competing with government, but BUSA believed that where government did not have the capacity, the private sector must be given room to provide services. Related to this, there was also a need to address assistance for Small Medium and Micro Enterprises (SMMEs) to increase the share of economically active businesses.

Ms Dlamini-Dubazana asked what was meant by "fiscal stimulus packages should rely primarily on temporary measures"

Ms Humphries replied that a framework for South Africa's response was drafted by COSATU, FEDUSA and the National Council of Trade Unions (NACTU). This document made specific recommendations and was presented to the Minister of Economic Development, Hon Ebrahim Patel. The framework was discussed by the Public Finance and Monetary Policy Chamber at NEDLAC. The Minister of Finance was invited to give input on this framework, specifically stimulus measures.

Prof Parsons responded that there was a Leadership Group on the Economic Crisis, chaired by Minister Patel. There had been two International Labour Organisation (ILO) reviews on how various countries responded to the global economic crisis. South Africa came out of this very well. All measures worked on a time lag, and depended upon how speedily a measure took effect in the economy. Counter-cyclical measures should be temporary, targeted and timely and these should guide South Africa's action. It would be advisable for the Committee to access that report from NEDLAC.

Ms Dlamini-Dubazana asked BUSA to comment on the private sector’s role in achieving the government's five key deliverables.

Mr Z Luyenge (ANC) asked BUSA and FEDUSA to comment on the possible introduction of the climate change related taxes, against the background of the economic recession and the upcoming Copenhagen Conference.

Ms Humphries replied that FEDUSA did not want to see the introduction of new taxes in the current recession. South Africa had to look more closely at how to use resources more efficiently, especially at local level. South Africa also needed more initiatives to educate citizens on these issues. More taxes would be very detrimental to the economy and job creation.

Ms Siwisa responded that there was a need for a balanced approach and that whatever intervention was adopted it must be appropriate and well-timed. The discussion on climate change taxes must be accompanied by a broader discussion on mitigation and incentives. South Africa was a developing country with specific requirements. Although the risks that climate change posed were understood, a balanced discussion was needed. She suggested that this was a matter the Committee might consider as climate change had real economic implications.

Ms Z Balindlela (ANC) asked FEDUSA to comment on progress it had made with workers in its skills development programmes.

Ms Humphries replied that FEDUSA ran artisan training, in conjunction with the Department of Labour. 7 000 artisans had been trained in 2008/9, and this was an ongoing project.

Mr E Mthethwa (ANC) asked what programmes within FEDUSA sought to address corruption.

Ms Humphries replied that when people democratically elected representatives in government, they did not expect to see wasteful expenditure. In recent weeks there had been extensive press coverage on government's expenditure on cars and luxurious hotel accommodation while people on the ground were living in severe poverty. Politicians had to go back to their constituencies and explain this spending. FEDUSA raised this issue based on the questions it had been asked by its members, and these must be addressed.

Mr Mthethwa asked what sources were used for the employment figures in FEDUSA's submission.

Ms Humphries replied that 1929 to 1933 was the period of the Great Depression. The figures were a comparison between this period and May 2009, when South Africa officially went into recession. FEDUSA used studies published by Statistics South Africa, the Labour Report, and the ILO country reports, and used the statistics in those studies when compiling its submission.  FEDUSA also used information from the Adjusted Estimates of National Expenditure and the previous two years' MTBPS.

Mr Mthethwa referred to page 11 and asked FEDUSA to clarify what was meant by paragraph 3, on the curbing of spending within national government.

Mr D Van Rooyen (ANC) noted that FEDUSA referred to the expanded Cabinet and the added expenditure and asked which ministries it did not regard as necessary.

Mr van Rooyen referred to the importance of fiscal sustainability and said that a moderate deficit was necessary to attain this. The MTBPS stated that it would take some time to achieve this - possibly by 2013. He asked what a “moderate deficit” would be, in the South Africa context.

Prof Parsons responded that the markets had responded well to the deficit projections and the proposed winding down of the deficit over the next three years. Sticking to this plan promoted continued confidence in South Africa. BUSA was comfortable with this, given the need for spending.

Ms N Sibhidla (ANC) recalled that BUSA noted that there were bottlenecks in increasing PPPs and asked BUSA to comment on whether PPPs were the best option for government in South Africa.

Prof Parsons responded that PPPs accounted for about 3% to 5% of overall infrastructure spending. This was low compared to world standards, and this had primarily been because of low demand and problems in making PPPs work in the past. It was time to re-look at PPPs and how they could inject private sector efficiency into State structures and help the State to access domestic and foreign financing.

Ms Sibhidla referred to government's goal of halving unemployment by 2014. BUSA noted that unemployment would get worse before it became better. She asked what measures could be used to reduce the impact of unemployment.

Ms Siwisa responded that a different, more in-depth discussion on creating economic opportunities, for businesses and individuals, must be held.

Mr D Montsistsi (ANC; Gauteng) suggested that perhaps SOE salaries were intended to retain personnel and experience.

Ms Siwisa replied that SOE salaries could never be comparable to those in the private sector. This was a question of what drove people to work in the public sector. She referred to the psychological factors at play when people decided on where they would be employed. She felt that the issue of staff retention was broader than remuneration alone. Government did not have unlimited resources and would not be able to compete with the private sector in all instances. SOE employees needed to be reminded of this.

Mr Coenraad Bezuidenhout, Parliamentary Officer, BUSA, added that the core issue was delivery. The country wanted SOEs that were administratively efficient, but people should not be rewarded simply because they had achieved administrative efficiency. SOEs needed to deliver according to their mandate. If employees did receive bonuses, government had to ensure that these were based on real delivery and real leadership in these entities.

Mr Montsitsi referred to the private sector tax cuts proposed by FEDUSA. He asked how this could be done under recessionary conditions. He asked how the lower tax revenue would impact on job losses and lower consumer consumption.

Mr Montsitsi referred to the comment that the purpose of the new ministries included giving perks and privileges to the executive office. In his opinion the reshuffling of the Cabinet was appropriate and necessary for the integrated development of South Africa.

Ms Humphries responded that this referred specifically to the staff complement attached to the new departments and noted that FEDUSA questioned whether this was really necessary, as it did not want to see unnecessary expenditure. In addition, as resources were limited, they should be used in the best manner possible.

Congress of South African Trade Unions (COSATU)
Ms Prakashnee Govender, COSATU Parliamentary Office, briefed the Committee on COSATU's response to the MTBPS. Two graphs were presented to illustrate the contextual challenges in South Africa. The first graph depicted the rate of exploitation of labour in South Africa and showed that the recovery in profits in South Africa was the result of reducing the share of workers in the national income. The second traced the deterioration in the current account deficit. COSATU was of the opinion that the deficit was likely to persist, due to the global economic crisis because the rand was kept artificially strong to generate a market for foreign goods.

COSATU presented its key expectations and specific comment on the MTBPS proposals on the medium term priorities highlighting the creation of jobs, education, improving health outcomes, rural development, fighting crime and corruption. Comments on the MTBPS continued on the fiscal stance, monetary policy and social spending.

National Education, Health and Allied Workers Union (NEHAWU)
Mr Sidney Kgara, NEHAWU Parliamentary Office, commented on the well-articulated thrust of the MTBPS, committing government to “doing things and thinking differently” and hoped this theme would be reflected in the review of the macroeconomic policy framework when the budget was tabled in February 2010. The submission focused on job creation, the National Health Insurance (NHI), opposition to Public Private Partnerships and primary health care.
NEHAWU noted that local government was inadequately funded and believed that the R12 billion allocation over the next three years was not sufficient, considering the funding crisis at municipalities.

National Union of Metalworkers of South Africa (NUMSA)
Mr Woody Aroun, NUMSA Parliamentary Office, highlighted NUMSA's concerns about the promotion of local procurement, trade liberalisation and increasing job losses. Regarding hefty salaries and perks in the public and private sectors, NUMSA hoped this wastage would be corrected and that the culprits would be severely dealt with.

Mr Aroun referred specifically to NUMSA's petition to the South African Reserve Bank (SARB) and its call on the Governor of SARB to reduce interest rates and scrap inflation targeting. Despite bilateral discussions NUMSA had yet to see any result from this engagement. NUMSA also called for caution regarding the planned relaxation of exchange controls.

Discussion Ms Sibhidla asked whether Mr Kgara opposed PPPs being used in areas other than infrastructure development. If so, she asked what model of PPPs NEHAWU would support.

Mr Kgara replied that there was no model of PPPs that NEHAWU would support. This was valid for COSATU, the ANC and the SACP in the context of the Alliance Summit 2008, where the termination of continuing PPPs was agreed upon. This was because of the outcomes of PPPs. They resulted in outsourcing and this impacted on the quality of jobs, declining working standards and declining public service delivery. He was of the view that the public sector should deliver public services, and that the private sector should stay out of the public service.

Ms Sibhidla asked COSATU what the alternative response to deal with structural inequality would be.

Ms Govender responded that social spending should focus on infrastructure investment, roll-out of transport, access to education, access to healthcare and access to social services. She said that income grants could be a stepping stone for people to find alternative ways to earn income. Government should also address the structural problems of unemployment. In respect of industrial policy, COSATU also called for more labour intensive industries, to get unskilled and semi-skilled workers into the formal economy. Trade policy should promote local industry, and thereby discourage the reliance on the foreign market to promote growth in the domestic economy.

Dr George asked what the sources of COSATU's information were.

Ms Govender replied that the statistics were drawn from reliable sources such as the South African Reserve Bank. COSATU could send the sources to Members for them to verify the credibility. She assured members that the data was credible.

Dr George asked the unions to clarify their position on inflation targeting. He asked whether they thought inflation should not be managed.

Mr Kgara agreed with BUSA that administered prices impacted the inflation rate. He stated that there were problems with the South Africa capitalist system, where major monopolies colluded to fix prices. It was important to break this mould for genuine competition and prices that reflected costs. He was of the opinion that a lot of inflation arose in this way.

Mr Aroun responded that the obsession with keeping inflation within a target band had not worked. South Africans continued to see prices rise. He felt that the classical economic approach, premised on the free market economy, had become somewhat of an irrational science, and that the envisaged equilibrium was not being achieved. There was no one-size-fits-all solution to this problem. COSATU would pursue the goal of scrapping inflation targeting. All the economic views possible should be brought into the debate. South Africa had to move away from the idea that this was the only model that could be followed. COSATU believed there were other alternatives.

Dr George pointed that wage increases that were higher than productivity increases crowded out new employment, and asked what COSATU did to help people find jobs.

Ms Govender said that the reason COSATU called for employment creation was to absorb more people into formal work. COSATU also supported increases in the amount of decent work opportunities. This was not only about putting people into jobs but also about ensuring that jobs provided an effective barrier to poverty.

Mr Aroun asked what the road to recovery really meant. Government's support programmes in the past were not meant to increase jobs, but were rather aimed at stabilising industries, such as the auto industry, in the face of global competition. It was important to COSATU to see how government support programmes could be leveraged to create jobs.

Dr George recalled the comment on the taxation on non-essential imports. He asked what was specifically being referred to, and what kind of income was generated by this taxation.

Ms Govender replied that COSATU had a list of these goods. COSATU could not undertake a costing of the revenue generated until there had been a sectoral analysis of the non-essential import goods for consumption. This could be discussed at the NEDLAC Distressed Sector Task Team. The emphasis of this comment was to discourage competition from imports, not revenue generation.

Ms Dlamini-Dubazana asked for COSATU's view on the counter-cyclical fiscal policy.

Ms Dlamini-Dubazana asked for COSATU's opinion of the National Treasury 's national borrowing cycle.

Ms Dlamini-Dubazana asked what was meant by a "decent job" in the context of improving people's quality of life. She referred to the good conditions of employment at big corporate call centres, and noted that these people were managed by labour brokers.

Ms Govender responded that while COSATU had not gone into detail on this issue, its broad proposals on access to services, education and basic resources reflected the improvement of people's quality of life. COSATU believed that people should have access to free education, accessible tertiary education and health care.

She added that while she could not speak for the specific call centres used in the example, her experience had shown that the nature of the jobs was often very precarious and that the centres depended on young workers. These young workers were easier to dismiss and difficult to unionise. Job security was severely compromised.

Ms Dlamini-Dubazana asked COSATU what was meant by "speculative capital flow"

Ms Dlamini-Dubazana remarked that the MTBPS was a policy statement and that there was no way that it could give details of implementation. The statement invited inputs and discussions on guidelines for inclusion in the Budget in February 2010.

Ms Dlamini-Dubazana stated that the subject of the NHI was first discussed in 1994. The MTBPS laid the foundations for this by reflecting the allocation that could be made to the Department of Health for the project.

Mr Kgara replied that while it was true that the NHI was discussed in 1994, it had not been introduced as a clear policy intent since then. The clear policy intent was only recently stated, and that was why NEHAWU was currently awaiting the draft NHI plan.

He added that the MTBPS also indicated public policy intent over the medium term. It was a plan of the programme of action and what would be budgeted. It informed expectations and created predictability. Therefore, if nothing was said on certain matters, this was cause for concern.

The meeting was adjourned.