The People's Budget Coalition (PBC) welcomes the 13% growth in spending on basic services for our people. We hope this budget will start a longer-term trend toward qualitative improvements in services for our people.

The PBC evaluates all government policies, including the budget, in terms of the impact on the poor. After all, SA remains one of the most inequitable countries in the world, with the richest 10% of households capturing 45% of the national income, while the poorest 20% get under 2%.

The critical questions therefore become how government spending

• Supports employment creation both directly and through provision of services to poor communities
• Contributes to more equitable access to assets, infrastructure and skills
• Provides social protection to ensure that no South African suffers destitution.

A pro-poor budget must thus be understood in terms of its direct impact on living standards and its support for a more equitable economy, and in terms of funding systems that improve the income distribution.

These criteria mean that the PBC analysis of the budget must focus on expenditure, since the majority of poor people earn too little to pay income tax, but will suffer from reduced services if government revenues go down.

From this standpoint, the 2006 budget promises real benefits for the poor. Expenditure increases 9% above CPI, so that spending per person rises around 8%. This robust growth in spending permits an increase in investment as well as an expansion in social development grants and basic services. As ASGI-SA promises, that in turn should help overcome the very low rates of investment seen in the past decade.

An important question remains how the funds will be allocated between local governments, which are largely responsible for delivering basic infrastructure. The current local-government grant does not adequately compensate for massive differences in access to income from rates and services. As a result, even with higher spending poor communities do not get the resources they need in order to work their way out of poverty.

The strong growth in the budget means virtually every function expands substantially, which should both stimulate the economy and employment and ensure improved services for most communities. The PBC welcomes the decline in military spending in real terms, since human security is more important for our national security than armaments.

The PBC particularly welcomes the increase in the budget for land reform by close to two thirds. As we have noted in the past, achieving government targets in this area will require a tenfold increase over 2005 levels. That means even greater expansion is required in future. At the same time, the limited and disjoined nature of post-settlement support remains a concern.

The PBC welcomes the increase in social grants of about 1,5% above inflation. Still, as the Minister noted, these increases are from a relatively low base. Moreover, many unemployed people still receive no government support at all, which is why the PBC supports the introduction of a basic income grant as a floor on income for all South Africans. As a minimum, we would like to see an extension of the child support grant up to the age of 18. Furthermore, we note the Minister's admission that many people earn wages that are even lower than the state old-age pension - an indictment of the many employers who pay workers starvation wages.

The PBC would like more detail on the EPWP. The fact remains that the results, from the standpoint of communities, remain inadequate. Many of the jobs created are very short-term as well as poorly paid. To mobilise communities around public works and to ensure a strong impact on welfare requires much greater transparency and monitoring, a stronger link to skills development and greater community control.

The PBC appreciates the effort to increase spending on economic services, which have faced very slow growth in the past ten years. Government support for economic activities that can create employment remains critical for equity and sustainable growth. But economic departments still do not adequately prioritise equity and decent work, instead focusing on high-tech endeavours that cannot build a more inclusive economy. That is one reason that unemployment remains extraordinarily high. While ASGI-SA is a first step toward addressing this problem, it does not go nearly far enough toward economic transformation.

The cuts in personal and company income tax make the overall tax structure less progressive, while limiting the funds available for improving services for the poor. Half of all workers earn too little to pay income tax, so they do not benefit at all from the cuts. Moreover, both the percentage cut and the increase in absolute terms is greater for the rich than for the poor.

If any taxes are reduced, it should be the VAT, which has a regressive impact (that is, the poor pay a greater share of their income on VAT than the rich). The PBC has also long called for a shift to a multiple-rate VAT system, like that found in most other countries, which would impose a higher tax on luxuries than on necessities. The zero-rating of rates actually works in the opposite direction, since only relatively well-off people will benefit.

Too much has been made of the roll overs and the allegation that the state cannot spend additional funds. In fact, in 2003 rollovers only came to 0,8% of the budget. As the PBC has noted repeatedly, expenditure could be increased rapidly to overcome shortfalls in funding for health, education, the acquisition of land for housing, and welfare grants, amongst others. Clearly, to ensure spending of the proposed increases will, however, require careful work to build up capacity in the affected departments.

A major concern is the proposal to increase state investment by privatising so-called non-core assets. As the situation at Transnet demonstrates, this type of privatisation can both undermine services to the poor and cause massive downgrading or loss of jobs. It would make more sense to stop cutting taxes and use the retained funds to build up our infrastructure.

In sum, the PBC welcomes the substantial expansion in the budget. Still, as the budget itself recognises, South Africa cannot achieve sustainable, pro-poor growth unless the government and our people do far more to transform the economy and government spending in that context. The PBC continues to call for a stronger development strategy, going beyond the limited interventions in ASGI-SA, to ensure that the second decade of freedom does far more to benefit working people and the poor.

For more information contact:
Mr. Eddie Makue, SACC (011 241 7809 or 082 853 8781)
Hassen Lorgat, SANGOCO (011 403 7746 or 082 411 2946)
Patrick Craven, COSATU (011 339 4911 or 082 821 7456)