NUMSA Submission on the 2014 MTBPS to the Standing and Select Committee on Appropriations 31 Oct 2014

Structure of the Presentation

1. Introduction

2. Economic analysis of the budget

3. Analysis of the proposed policies

4. Conclusion

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Introduction

It is without question that the MTBPS must be premised on the absolute principle that government priorities and spending must at all times be fundamentally geared towards reducing unemployment, poverty and inequality.

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The Contradiction

‘Doing more with less’ does little to vindicate the Minister when he says that the ‘budget will not be balanced on the backs of the poor’

4

Economic Analysis

Economic analysis will cover the following issues:•Discrepancies between estimates and outcomes•Function groups expenditure allocation•Real growth of expenditures

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Estimates differences• Persistent differences among projections and final outcomes

in terms of GDP growth and expenditures:

Average difference = 1.4 GDP

points*

*Average difference does not include the outlier number of 2009

Source: own calculations based on MTBPS 2008-20146

Comparable Expenditure functions 2013/14 Estimates vs. 2013/14 Outcomes

[Source: National Budget 2014, MTBPS 2014 ]

Function Group

2013/14 Estimates, R

2013-14 Outcome, R

Difference, %

Defence (all) 154.5 153.9 -0.39% Defence and state security 44.9 45 0.22% Police Services 74.1 74.2 0.13% Law courts and Prisons 35.4 34.7 -1.98%Pre-school, primary, secondary 180.1 176.8 -1.83%Post-school sector 50.8 51.2 0.79%Arts, sports, recreation and culture 9.7 7.6 -21.65%Employment and social security 47.9 48.4 1.04%General public services 62.6 63.4 1.28%Health 134.2 134.2 0.00%Social protection 130.9 131.2 0.23%State Debt 101.2 101.2 0.00%All expenditure 1048 1147.4 9.48%

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Estimates differences cont’d

Differences in the expenditure due to under-spending – serves to undermine service delivery and social prosperity of South Africans.

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A recent report by Dawson and McClaren (August 2014) on Monitoring the Right of access to adequate housing in South Africa by the Studies in Poverty and Inequality Institute (SPII) argues that the Urban Settlement Development Grant (USDG) which came into effect in 2011 has seen major under-expenditure or under utilisation of allocated resources:

2008-9 2009-10 2010-11 2011-12 2012-13

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Function Groups 2012/13 Percentage of total exp.

2013/14 Percentage of total exp.

2014/15 Percentage of total exp.

2015/16 Percentage of total exp.

Direction

Defence and state security 3.96% 3.92% 3.84% 3.72% Police Services 6.52% 6.47% 6.29% 6.13% Law courts and Prisons 3.11% 3.02% 3.01% 2.91%Basic education N/A 15.41% 15.07% 14.99%Post-school education and training N/A 4.46% 4.27% 4.43%General public services 5.55% 5.53% 5.38% 5.08%Health 12.08% 11.70% 11.67% 11.50%Social protection 11.78% 11.43% 11.50% 11.53%Employment, labour affairs, and social security funds 3.74% 4.22% 4.62% 4.77%

Industrial dev-t, trade and innovation N/A 5.19% 5.08% 5.04%Economic infrastructure and network regulation N/A 5.97% 5.94% 5.25%Housing dev-t & social infrastructure N/A 12.32% 12.58% 13.36%Rural dev-t and land reform N/A 0.88% 0.83% 0.80%Allocated by function 91.54% 91.18% 90.82% 90.21%Debt-service costs 8.45% 8.82% 9.18% 9.61%

Function Groups as a Percentage of Total Expenditure

[Source: Own calculations based on MTBPS 2013, 2014] 10

Function Groups cont’d1. Directionality: decreasing apart from the debt-service costs2. Priorities according to the MTBPS are not in line with the

main problems of SA:

3. Given the rising debt levels, does the government invest the debt-money in the right set of policies?

1. Basic Education (~15%)

2. Housing development and social infrastructure (~13%)

3. Health(~11.5%)

4. Social Protection (~11.5%)

5. Police Services (~6.5%)

6. Economic infrastructure and network regulation (~6%)

7. General Public Services (~5.3%)

8. Industrial development, trade and innovation (~5%)

9. Post-school education and training (~4.5%)

10. Employment, labour affairs and social security funds (as per MTBPS)

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Function GroupReal Growth rate 2014/15

Real Growth rate 2015/16

Real Growth rate 2017/16

Defence, public order and safety 0.28% -1.04% 0.37% Defence and state security 0.23% -1.34% 0.28% Police Services -0.38% -0.79% 0.08% Law courts and Prisons 2.03% -1.71% 1.09%Basic Education 0.13% 1.31% 0.10%Post-school education and training -1.98% 5.51% 3.07%General public services -0.34% -3.79% -5.91%Health 2.09% 0.43% 0.43%Social protection 2.92% 2.10% 1.21%Economic Affairs 4.09% -1.90% 1.95%

incl. Employment, labour affairs, and social security funds 12.06% 5.18% 1.88%

Industrial development, trade and innovation 0.18% 1.24% 1.22%

Economic Infrastructure and network regulation 1.86% -10.07% 2.72%

Local development and social infrastructure 4.40% 6.95% -0.84% Housing dev-t and social infrastructure 4.48% 8.19% -1.31% Rural development and land reform -3.04% -2.76% 2.76%Allocated by function 1.94% 1.18% 0.28%Debt-service costs 6.54% 4.42% 4.45%All expenditure 2.34% 1.86% 1.35%

Function Groups Real Growth*

*Real growth rate = Growth rate per year - Inflation

[Source: Own calculations based on MTBPS 2013, 2014] 12

Real growth cont’d• Negative real growth means that expenditures do not

keep up with inflation;

• Function groups losing in real money over 3 years: • Defence and state security• Police services• General Public Services• Economic Infrastructure and network regulation• Rural development and land reform

• Declined GDP growth coupled with lower real expenditure growth means this not a counter cyclical budget

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Public wage bill concerns

• Public service is fundamental for future development;

• Reducing wage bill in public sector will have a negative effect on job creation;

• To ensure growth, development, and service delivery vacant posts need to be filled, not cut;

• Considering 25.5% unemployment (36.8% expanded definition, StatSA), withdrawing funding and freezing recruitment will worsen the situation.

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Policy Concerns

- Tax Reforms

- Sale of non core assets (privatisation)

- Discrepancies in Electricity Pricing [Eskom – Municipalities: Ratanda/Heidelberg, KwatsaDuza (Kwatema, Tsakani, Duduza), Greater Germiston and Mpumlanga (Gert Sibande Municipal District)]

- Health (Non- Negotiables)

- Attack on Labour (‘labour disruptions’)

- Procurement (irregular expenditure)

- Renewable Energy

- Corruption

- Job Creation and ETIA 15

Sale of non-core assets concern

• There are no “non-strategic assets”;

• Sale of non-core assets leads to higher privatisation rates and less control over pricing;

• Given support of government to SOE are these SOEs giving back to the economy? – Example: Transnet R 50 billion tender going to only

foreign companies neglecting local manufacturers

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Electricity Pricing Concerns• Wide differences across Eskom versus Municipalities

pricing schemes; For many municipalities the situation has become untenable, e.g. Ratanda/Heidelberg, KwatsaDuza (Kwatema, Tsakani, Duduza), Greater Germiston and Mpumalanga (Gert Sibande Municipal District)

• NUMSA proposes to: – Harmonise tariffs– Ensure affordable electricity– Increase the amount of free basic electricity 50kwh-

100kwh

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Health NNs concerns

• A Factsheet on the Non-Negotiable Budget Items in the Provision of Public Health and HIV/AIDS Services in South Africa (Shezi, et al. 2014 ) says that the National Health Council (NHC) introduced the so-called ‘Non-negotiables’ (NNs) in health sector spending to ensure that priority interventions are adequately funded and implemented. However, according to the researchers (citing Day and Daviaud, 2014) spending on health goods and services grew by only 4% whilst spending on personnel grew by 12%.

• This is totally inadequate given the pressing problems of HIV/AIDS, tuberculosis, etc.

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Labour We take exception to the remark that ‘labour disruptions’ are amongst the reasons for our poor economic growth rate. Exercising our constitutional right to strike should not be labelled as ‘labour disruptions’ and over the last few months the President and several Ministers have launched a persistent attack on the working class and our constitutional right to strike. Workers, including communities have a right to protest against the rising socio-economic inequalities that has made the country one of the most unequal societies in the world.

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Problems with ProcurementBoth the Department of Trade and Industry and Treasury agree that national procurement policies and regulations are being flouted. NUMSA would like to see Minister Nene take a harder stand on those who breach procurement regulations. In a recent article that appeared in Engineering News (12 September 2014)  Minister Davies indicated that he would like the “Auditor General flag as ‘irregular expenditure’ any flouting of buy-local procurement rules by government departments and State-owned companies”. It remains to be seen what steps Treasury will implement to curtail what Minister Davies calls ‘irregular expenditure’.

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Renewable Energy- Government’s 1m SWH by 2014 – beginning of the year DoE

reported 395 088 installations across all provinces (Briefing of Select Committee on Economic Development, 25 February 2014)

- Shift from rebate to contract model- Designation of SWH - But imported components continue to flood the market- At the end of January this year 60 workers were retrenched at a

local SWH manufacturing plant in Gauteng in spite of the - assurance that government is moving from rebate to bulk local

procurement of SWH as part of an effort to improve the localisation of components.

REIPPPP ranked highly but general feeling amongst IPP is:

Our core business is to build wind farms, produce electricity, NOT socio-economic development (SED) – so government must draw a line when this obligation ends ... (Windaba 2014)

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Fighting Crime and CorruptionAccording to a report published by Corruption Watch[1], 5485 reports of alleged corruption were received since the organisation was launched in January 2012, and 2262 reports were received in 2013 ‘with a marked improvement in overall reporting quality’. The report highlighted corruption in government, as well as the top four sectors in corruption reports in 2013. While schools topped the list as the most corrupt sector (38%), irregularities in the procurement process, embezzlement of funds, school governing body maladministration and corruption in employment have put our schools at risk.

[1] The Corruption Watch Report Rip off the Corruption Tag, www.corruptionwatch.org.za

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Corruption in Government

Tier of Government %

Local Government 18

Provincial Government 48

National Government 16

State Owned Entity 3

Other 15

Sector %

Schools 38%

Traffic and Licensing 10%

Healthcare 3%

Water 2%

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[1] The Corruption Watch Report Rip off the Corruption Tag, www.corruptionwatch.org.za

ETIA concerns

On Tuesday 23 September 2014 representatives from Treasury briefed the Public Finance Monetary Policy Chamber / Labour Market Chamber in NEDLAC on the ETIA. Treasury reported a figure of 211,000 jobs. It became clear however that this was, by its own admission, “an estimate”. They apparently took tax information and divided the retained tax by the number of applications. They then reported and this came from a monthly form that employers complete and they believed they would get more information from the bi-annual tax return.

- Confidentiality- Deadweight jobs (2:1) - Uptake by Labour Brokers - R1,2bn spent up to August 2014

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Stats SA QLFS Results

Even though Statistics SA does not measure employment of people from 18 to 29 years old, it captures employment data of those aged between 15-24 and 24-34. If the youth tax incentive was favourable either one or both of the categories of employment would have increased. However, compared to the last quarter of 2013 there are less people employed between the ages of 15 to 34 and the unemployment rate increased by an average of 2.75%.

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Business DayAgencies to keep eye on SA budget pledges by Ntsakisi Maswanganyi , 27 October 2014

RATING AGENCIES CALL THE SHOTS ...

OUR POLICY CHOICES INFLUENCED BY INTERNATIONAL MONEY LENDERS... BLACKMAIL!

IN THE wake of Finance Minister Nhlanhla Nene’s austere budget last week, rating agencies are keeping a keen watch on SA with at least one of the three major firms expected to review SA’s credit rating in December.A commitment to cut spending has been welcomed by Standard & Poor’s (S&P) and Moody’s though they are watching closely to see how the undertaking pans out.

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Yet, almost everywhere in recent years, the spread of market liberalism has coincided with highly unequal patterns of income and wealth distribution. A world where its 85 wealthiest citizens own more than its bottom three and a half billion was not the one envisaged 50 years ago. (UNCTAD Report 2014)

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Policy Choices (UNCTAD, 2014)According to the UNCTAD 2014 report a balanced-growth scenario should have the following elements (UNCTAD 2014: v-vi)

•incomes policies to support growth of demand on a sustainable basis

•growth-enhancing fiscal policies

•industrial policies to promote investment and structural transformation

•regulation of systemically important financial institutions and capital controls to stabilize global financial markets

•development-oriented trade agreements.

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Thank You

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