Budget 2008: submissions by NEDLAC Community Constituency - Black Sash & Financial Sector Campaign Coalition, FEDUSA & BUSA

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Finance Standing Committee

28 February 2008
Chairperson: Mr N Nene (ANC)
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Meeting Summary

The Federation of Unions of South Africa commended the giant strides government had made in addressing inequality, poverty and unemployment. The union called on government to review its macro- as well as micro economic policies so that the South African economy could adequately deal with socio-economic problems. Government should focus more on long-term planning to address pressing issues facing South Africa. Members asked a range of questions ranging from the revision of tax policies, unemployment eradication, the current account deficit, the electricity crisis as well as the state of tertiary education in South Africa.

The NEDLAC Community Constituency, represented by Black Sash and the Financial Sector Campaign Coalition, stressed that it was imperative for government to scrap the means test that determined eligibility for the Child Support Grant due to many South Africa not having access to information and identity documents. The conditions attached to the means test and the constant struggle of children in accessing these grants was a major cause for concern. It also emphasised the necessity for government to raise the age of termination of eligibility from 14 to 18 years.

The NEDLAC Community Constituency expressed their concern with the continuous hike in the interest rate as well as inflation. They added that government needed to reduce the VAT rate from 14 to 13% as this would help bolster the purchasing power of poor South Africans.

BUSA fully supported the APEX priorities that calls for increasing employment, reduction of poverty and inequality, investment in productive capacity, strengthening public service delivery and raising net exports. However, he raised BUSA's concern with the ongoing electricity crisis and the effects thereof.

Members asked questions about what intervention and compromises government could make in assisting the Deputy President with ASGISA. They also called on BUSA to submit any proposals that might help the growth of the economy.

Meeting report

Federation of Unions of South Africa (FEDUSA) submission
FEDUSA's submission, presented by Ms Gretchen Humphries, parliamentary officer for FEDUSA, centered on key aspects of to the South African economy. She indicated that even though the South Africa economy was growing, the growth was seen as being too slow to meet the demands of a growing population and consumer market. She stressed that there were various other concerns due to the plunging of equity markets, rising fuel and food prices, rising inflation, the electricity crisis and raising net-exports.

On the socio-economic outlook in South Africa, Ms Humphries commented that government needed to address the concerns around marginal personal income taxes well as viable and sustainable solutions that could stimulate economic growth that would create jobs and eradicate poverty and inequality.

She added that due to the lack of long-term planning, South Africa was facing a capacity problem due to the electricity crisis and the looming threat of job losses due to this capacity constraint.

Ms Humphries noted that FEDUSA welcomed the substantial spending allocation and tax measures directed at industry and trade development. FEDUSA would lobby government to consider the lowering of tax rates over the next few years to increase foreign investment as well as domestic private investment. She concluded that taxation of retirement savings as well as the inflation rate needed to be reviewed.

Discussion
Mr K Moloto (ANC) opened the debate on FEDUSA's submission and asked if FEDUSA was calling for a reduction in both corporate as well as personal income. Mr Moloto stressed that it was important for Ms Humphries to identify the core constituency that FEDUSA represented.

Ms Humphries replied that FEDUSA would always call for a reduction in personal income tax, as high levels of taxation would impede on South African workers purchasing power. The underlying factor in calling for a reduction in corporate tax originated from the notion that corporates would invest the gains made on tax reduction in their employees. FEDUSA's core constituency represented a diverse group of workers. She emphasised that the FEDUSA membership comprised professional, semi-professional and unskilled labour.

Mr D George (General Secretary of FEDUSA) added that according to the Minister, corporate taxes were reduced to stimulate economic growth and to make South African corporations more compatible internationally. Even though corporate taxes were reduced, there were no real sign of job creation.

Mr. Nene asked if the reduction in corporate tax would really benefit workers and whether any attempts had been made by FEDUSA to engage with employers on this issue.

Mr George replied that measures were being looked at to engage with employers on this. The problem with engagement centred on the reality that unions tend to engage with employers only at the Collective Bargaining Council. He stressed that it was difficult to tell CEOs what to do with their money.

In addition, South Africa was losing too many skilled workers to countries like the United Kingdom, Australia and New Zealand. This was due to skilled workers not being paid enough in South Africa. According to FEDUSA this had far reaching implications for the South African economy.

Dr T George (DA) noted that Ms Humphries expressed concern over the last Current Account Deficit and asked what FEDUSA would have liked to have seen in the 2008 Budget that would have addressed this.
He also sought clarity on Fedusa's call for a reduction in personal income tax, yet South Africa's “savings” environment was not so positive.

Ms Humphries indicated that in FEDUSA’s MTEF presentation to the Committee in 2007, they had highlighted core initiatives that could be looked at in dealing with the Current Account Deficit. Treasury had recorded a surplus which could be utilised for job creation as well as for the implementation of programmes that would deal with skills development. Mr George (FEDUSA) added that it was important for the surplus to be used instead of borrowing money from the Bretton Woods institutions as this will result in a cycle of debt.

Dr George also asked for clarity on whether FEDUSA was calling for a rebate on post-retirement pension funds or investment returns on pensions in general.

Ms Humphries replied that FEDUSA was of the opinion that both post-retirement as well as investment returns on pensions should be looked at as inflation was really crippling and that the current Budget Review was not clear on the policies and guidelines on these two matters. She stressed that the returns should not be in the hands of pension fund officers and that post-retirement pension funds made provision for members to access their funds upon retirement or on termination of their jobs.

Mr N Singh asked FEDUSA to clarify their views on the employment rate in South Africa (in people and in real terms) as well as its proposals on how to lower the South African inflation rate. In light of rising fuel prices in South Africa, he also asked for an explanation on how FEDUSA could reconcile the rise in fuel prices with the lowering of inflation.

Mr D George (General Secretary of FEDUSA) replied that according to statistics released by the Ministry of Finance, 1,5 million jobs had been created since 1994. According to FEDUSA this figure was much too low and FEDUSA uses the extended definition of unemployment (35%), instead of the narrow definition of 25%.

Various members of the committee also raised the issue of oil levies and FEDUSA was asked whether the lowering of oil levies would not affect the inflation rate given the current South African economic environment.

Mr George replied that higher oil prices affected the purchasing power of consumers as well as transport costs. FEDUSA was aware that the profits gained from levies went to the UIF Fund and Road Accident Fund, but some form of revision should be looked at without having far reaching implications for the inflation rate. He stated that the Organisation of Petroleum Producing Countries (OPEC) had no body that controlled their actions and that they had free rein in the pinning of oil levies and prices.

Mr B Mnguni (ANC) stated that FEDUSA contradicted itself when it said that it supported Eskom's hike in levies, but yet seemed to complain about interest rates.

Mr George noted that Eskom's survival was paramount. The raising of levies would be used to build more power stations without there being any job losses, especially in the mining industry. He reiterated government's call for all South Africans to shoulder the blame and burden of the current electricity crisis and to work together in finding a solution.

On the issue of rising inflation rates, Mr George added that it was unfair for South Africans to be bombarded by continual interest rates hikes. He expressed his concern with this and called on the various role players to engage with the South African Reserve Bank (SARB) about not being too “harsh” on the South African economy and ultimately, the workers (consumers).

Mr Singh asked what government could do differently to stimulate effective economic growth.

Mr George replied that various studies had been done in the United States and Europe on the implications of macro-economic policies. These studies identified three specific areas that were important for effective economic growth. They included price stability, sustainable economic growth and rising employment opportunities. It was FEDUSA's view that the mandate of the SARB needed to be changed as much emphasis was placed on inflation targeting, rather than on collective macro-economic factors. SARB needed to focus more on sustainable growth (non-inflationary growth) and job creation. He added that South Africa had a problem with capacity and that South Africa needed to export more. New markets needed to be identified, especially China's robust and fast growing economy.

Ms Humphries noted that government needed to focus on long- and short term measures to provide a healthy environment for economic growth and that South Africa needed to look at other sources of energy.

Mr Mnguni asked if FEDUSA was planning mass action, given the possibility that there might be job losses due to the electricity crisis, especially in the mining industry.

Ms Humphries replied that a Section 77 notice had been filed with NEDLAC on FEDUSA's plans on mass action. FEDUSA would liaise with government, the private sector and civil society about pending mass action.

Mr S Dithebe (ANC) asked what FEDUSA's stance was on the level of education in South Africa and if more could be done to get the desired results.

Mr George replied that FEDUSA was seriously concerned with the state of education in South Africa. As chairperson of the Further Training and Education Board he had first hand knowledge of the crisis that was facing education in this country.

He commented on the vast amount of money that the FET invested in FET education, but that the results did not reflect that investment. He noted that emphasis should be placed on getting returns on investment, rather then on how much money was being spent. Mr George painted a bleak picture when he noted that the pass rate for FET colleges stood at 15 %. A meeting with the Education minister was on the cards to discuss this problem.

NEDLAC Community Constituency
Ms Karen Peters and Mr Elroy Paulus, Black Sash advocacy officers and members of the Financial Sector Campaign Coalition, presented the submission as part of the Community Constituency at NEDLAC. They called on government to address a wide range of socio-economic issues. They asked government to scrap the means test that determined whether a child was eligible for a Child Support Grant as many South Africans struggled to obtain grants due to the conditions attached to these grants as well as the necessity for government to raise the eligibility age from 14 to 18.

The NEDLAC Community Constituency (NCC) expressed their concern that no tax relief was forthcoming for those individuals earning less then R3800 per month and called for a reduction in Value Added Tax (VAT).

Ms Peters stressed that the additional allocation of R12 billion to social grants over the next three years was significant, but that it was not sufficient to address the unique unemployment and equality challenges in South Africa.

Mr Paulus added that government needed to do more to address the rising rate of poverty and that in the light of huge increases in revenue collected by SARS, the Budget did not make significant inroads into the alarming levels of unemployment, poverty and deprivation.

Discussion
The Chairperson asked for clarity on the NCC, Black Sash and FSCC remarks that they were dismayed at government's response in dealing with socio-economic policies.

Ms Peters replied that over the past ten years the NCC had submitted proposals to the Treasury as part of the “Tips for Trevor “Campaign for input on the budget. She added that none of these proposals ever made it into the Minister’s annual budget speech. The issue of inflation was not addressed, as it should, since mostly poor South African bore the brunt of rapid inflation.

Mr K Moloto (ANC) requested clarity on how the NCC proposed government find the finance to bankroll its proposals. It would mean that government had to raise both personal income as well as corporate tax to finance these ventures. The NCC should provide the Committee on the core basis as to why Value Added Tax should be reduced from 14 to 13 %.

Mr Paulus (NCC) commented that government needed to review its current macro-economic policies so that it could address key socio-economic problems more effectively.

Ms Peters added that for millions of poor South Africans the current VAT rate was too high and that a reduction to 13% would affect the poor’s purchasing power in a positive manner.

Mr Moloto asked for clarity on why the NCC was calling for the phasing out of the Means Test which determined eligibility for the Child Support Grant. If the Means Test were scrapped, then ineligible people would end up receiving a grant as well.

Ms Peter replied that the problem lay with the age restriction of the Child Support Grant (CSG). The current age restriction of 14 was simply far too low, given that a child was considered to be an adult at the age of 18 only. The current age of 14 should be increased to the age of eighteen. She added that the conditions imposed by the current Means Test aimed at exclusion rather then inclusion and that millions of South African children were still dependent on this.

Dr T George asked if the NCC could refer to any studies on the notion that girls from poor socio-economic backgrounds were falling pregnant maliciously just so they could access the SCG.

Ms Peters noted that empirical studies had proven that girls in poor areas were not falling pregnant maliciously just to access the benefits of the SCG.

Ms J Fubbs (ANC) called on the NCC to provide the Committee with studies as to who were struggling in accessing the Child Support Grant as well as to why people were struggling.

Ms Peters stated that many people do not have access to receiving the SCG due to their not having Identity Documents. She expressed NCC’s concern over the other constraints such as logistics as well as the lack of information, especially those people living in deep rural communities. She added that according to research done the take-up of the CSG was at the lowest amongst the 0-3 years age group and that government seriously needed to attend to this matter as well.

Dr George asked if government should put measures in place to assist marginalised people in entering the productive economy.

Ms Peters noted that a lot of poor people did have access to credit and that in cases where they did they were at the mercy of loan “sharks”. Poor people were becoming poorer and a healthy environment needed to be created that would assist the poor in entering the economy.

Mr S Ditebe (ANC) said that government had made giant strides in delivering necessary social grants to those in need. It was imperative for the NCC to provide an explanation why they believed that government was not fully committed to assisting those vulnerable groups, especially children. He stressed that given the current economic outlook as outlined by Minister Manual, it would be impossible to invest more money into socio-economic policies.

In response, Ms Peters argued that even though the number of people who receive grants had gone up from 1 million in 1994 to 12.4 million in 2007, a lot of people were still not receiving grants. She commended government’s efforts, but said that more could be done to address this issue.

The Chairperson stated that it seemed that children born at the dawn of democracy would not be receiving grants anymore. He asked for NCC’s opinion on this.

Ms Peters replied that these children would still be eligible for grants up to the age of 15 in 2009, but that they would not be eligible after 2009. This scenario would lead to more children becoming impoverished as a lot of children depended on this grant.

Mr Moloto stated that the overriding factor was that poor people should be assisted in engaging the economy rather then creating a culture of reliance on handouts.

Ms Peters replied that poor people also had dignity and that they would want to work, but that structural problems prevented them from finding employment. There needed to be investment in marginalised people and that the Expanded Public Works Programme should lend itself to being a sustainable job creator.

Mr N Nene stated that he was unsure of what benefits non-tax paying workers would receive if personal income tax was reduced and called on the NCC to clarify this statement.

Mr E Paulus (NCC) replied that these workers did not qualify for additional tax breaks as they were not paying any taxes. It was in the context of personal income tax that was paid by the majority of workers.

Mr N Singh (IFP) asked whether the NEDLAC Community Constituency (NCC) was part of the Basic Income Grant lobbying group.

Mr Paulus replied that the NCC was instrumental in the formation of this proposal. He stated that four economic researchers were unanimous in their conclusions that a basic income grant would be feasible and that the South African government should not dismiss this proposal as it would help millions of poor people.

Mr B Mguni noted that the NCC’S presentation painted a very pessimistic picture of economic realities in South Africa. He affirmed government’s continued assistance to the poor and asked what NCC thought government could do.

Mr Paulus replied that measures needed to be put in place to address the problem of the private sector’s exploitation of workers. Even though businesses were receiving tax relief they failed to include their workers in sharing the profits that were made.

He stated that even companies like Tiger Brand, who was named and shamed for price collusion, would now also receive tax breaks and that government should look at measures to curb and address this.

He said that many people had queries about their pension fund payouts and that companies had failed their previous employers.

Ms Peters added that it was about the choices that government made and not only about providing more money.

Mr Nene requested the NCC to provide their replies in writing to the unanswered questions as the Committee was running behind schedule.

Business Unity South Africa (BUSA) & Chambers of Commerce & Industry (CHAMSA)
Mr Roger Baxter (BUSA Chairperson: Standing Committee on Economic Policy) commended government on the 2008 budget and said that BUSA supported government's efforts to grow the productive base of the South African economy.

BUSA fully supported the APEX priorities that call for increasing employment, reduction of poverty and inequality, investment in productive capacity, strengthening public service delivery and raising net exports. However, he raised BUSA's concern with the ongoing electricity crisis and the effects thereof.

He said that government's macro-economic policies provide a foundation for the growth escalator and that the budget has done much in terms of micro-economic policy, with special reference to the tax break offered to businesses to stimulate economic growth, foreign direct investment and job creation.

Prof Raymond Parsons (NEDLAC and BUSA) expressed his concern with the lack of information and the lack of an institutional home for ASGISA. The targets set by ASGISA might be too idealistic and government had to engage with its partners on achieving the required targets.

Adv Abri Meiring, a tax expert from BUSA, focused on the taxation aspects of the budget and commended the government on the tax breaks offered to businesses. He stated that South Africa had one of the best VAT systems in the world and that an increase in VAT would be ideal, but given the economic and political realisations, that might not be possible. He stated that the Tax-GDP ratio was on the increase from 25% in 2005/6 to the current 28%.

Mr Vic van Vuuren (BUSA Chief Operations Officer; Chairperson of CHAMSA) concluded the presentation by calling on the various stakeholders to work together in stimulating the South African economy so that there was a healthy environment for businesses to flourish as well as addressing socio-economic issues.

Discussion
Dr T George asked how the 60% of electricity consumers that were doing little to reduce consumption could be influenced to reduce their consumption.

Mr R Baxter (Business Unity South Africa) replied that if consumers did not comply with reducing their electricity consumption then their electricity should be cut. He said that municipalities have been reluctant in dealing with this matter and it was important for them to crack the whip given the electricity crisis in South Africa. He noted that if timers were built into geysers then electricity usage would be able to be reduced automatically as consumers could thus control their own usage.

Mr S Dithebe (ANC) asked whether Business Unity South Africa (BUSA) have any proposals on how to address South Africa’s trade deficit.

Prof R Parsons replied that the trade deficit stood at R140 million. South Africa needed and could export more, given that there was a commodities boom in South Africa, especially in the agricultural sector.
At the consumer level, the demand side was growing and that this was funded by higher wage earnings.

Dr George asked if BUSA was of the opinion that Value Added Tax (VAT) should be increased.

Adv A Meiring (BUSA) replied that an increase in VAT would be a practical step in the right direction. He added that the South African VAT system was regarded as the best in the world and that a VAT increase could only be justified if the poverty rate was brought down, but given the current economic and political environment an increase in VAT would not be appropriate.

Mr K Moloto said that the Finance Minister had recently said that barriers to faster export growth included high telecommunication costs, skills shortages, transport capacity constraints as well as tariffs that raise the prices of imported intermediate and capital goods. He asked for clarity on BUSA’s experience with these factors, especially with tariffs imposed on imported intermediated and capital goods.

Ms J Fubbs (ANC) asked what sort of contingency plan the government needed to implement to address the volatility in export earnings.

Mr S Dithebe asked whether the R5 billion in tax subsidies over the next three years meant labour intensive industries and industrial policy would be able to spark a significant improvement in job creation.

Ms N Mokoto expressed her concern with BUSA’s comments that it was concerned about the obscurity and the lack of accountability connected to the electricity levy. She asked for clarity on why BUSA would make such a statement about a recently introduced measure by government to reduce electricity use.

On the issue of obscurity, Mr Baxter said that there was a need for broader engagement with government and ESKOM. There was a need for transparency in managing short and long-term goals.

Ms Mokoto asked about the assertion made by BUSA that the growth rate target and other targets set by ASGISA would not be met. What interventions and compromises could BUSA make in terms of the current global economic situation?

Prof Parsons replied that BUSA’s concern with ASGISA was its lack of momentum, the budget not being clear on ASGISA and ASGISA not having adequate representation in Parliament. He added that BUSA was behind ASGISA, but that there needed to be a form of institutional resonance.

Dr George noted that BUSA said that the current account deficit should not get too big. He asked how much was too big?

Mr Nene requested that BUSA answers the remaining questions in writing and adjourned the meeting.

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