Hope for the Future: FEDUSA Submission on the 2008 Budget

1. FEDUSA SUBMISSION ON THE 2008 BUDGET

2. 2008 BUDGET • Hope for the future, rather than immediate solutions for the short – term • Government faced serious challenges from abroad and domestically • Slower global economic development and the domestic electricity crisis resulted in pessimism

3. ECONOMIC OUTLOOK • South Africa is facing many challenges: • Set of policy proposals adopted at the ANC’s conference in Polokwane in December 2007 • Plunging equity markets ; power crisis ; oil price just below $100 a barrel ; uncontrollable inflation ; looming recession in the US • Fiscal policy is to focus on longer term issues while monetary policy should be utilized to curb inflation • This does not mean that budget policy has no role to play against the fight against inflation. • Estimates for the MTEF period show lower real non-interest expenditure than the previous years.

4. INFLATION • FEDUSA fully supports steps by the monetary and fiscal authorities to curb inflation. • The challenge to economic policy over the next MTBPS is to increase our economic growth rate and to lower inflation rate. • The effect of these factors is exacerbated by the electricity crises. • The implementation of its 24 Apex Priorities • Provision made for some of the priorities in the MTEF.

5. FEDUSA welcomes steps and is especially pleased with the fact that Government is not only paying lip-service to these matters • The 2008 budget proposals are generally aimed at intensifying measures of implementation to address the challenges of underdevelopment, poverty and inequality. • FEDUSA concerns in 2007 - high consumption expenditure, higher level of investment, large current account deficit, balance of payments, current account balance is such that it affects the exchange rate. • Mindful that the largest part of capital inflow consists of short – term investments.

6. ELECTRICITY CRISIS • Last few years FEDUSA pointed out that a low rate of infra-structural development by general government and public corporations could affect economic growth negatively. • BUDGET Review – decline in investment by general government and public corporations from a peak in the mid – 1970’s. • Importance of long – term planning and decision making. • Welcomes the support for Eskom and also the levy.

7. INCREASING ECONOMIC GROWTH AND EMPLOYMENT • As a trade union federation, FEDUSA’s focus on how the budget affects workers in the widest sense. Effects on economic growth, employment, how the budget contributes to empowering workers, material well being of workers after retirement. • Overall demand will be lower - lower private consumption and government expenditure. Tax relief of R7.2 billion to especially the lower income groups. Increases in the tax-free contributions to medical schemes will affect savings. • Concerns with the high marginal personal income tax rate on individuals. • Lower rate – stimulus for people’s propensity to work and save. • Lower marginal tax rate would also bring it closer to the marginal rate of company taxes.

8. FEDUSA applauds the supply-side measures to bolster growth and development - reduction in the headline corporate income tax from 29 per cent to 28 per cent and the reform of the STC regime to switch this from a company-level tax to a shareholder’s tax. • FEDUSA pleased with the high priority given to the Industrial Policy Plan. • Favourable consequences for employment – labour – intensive projects will be favoured. • Increase employment by micro policies. Labour-intensive projects under Expanded Public Work Programme, social services initiatives such as early childhood education, and community- and home-based care. Funding provided for labour centres. Leanership and internship schemes extended through spending and taxation. Small enterprises to support small businesses, including tax measures. Increased spending on education and skills development - rapid economic growth and higher levels of employment.

9. REDUCING POVERTY AND INEQUALITY • Viable long – term solution – high and stable labour – absorbing economic growth. • Social wage, in other words, free or subsidized services such as education, health and public transport, housing, water, electricity and sanitation, is expanded through further investment in basic services, expanding the school nutrition programme and ensuring access to education for the poor. • Wage subsidy, which may have favourable consequences for employment, as this would enable small businesses to employ more workers. • Engagement within NEDLAC. • Welcomes increase of the disability and old age grant. Extension of the child support grant to children up to their 15th birthday.

10. RAISING NET EXPORTS • FEDUSA welcomes the substantial spending allocations and tax measures directed at industry and trade development included in this year’s budget.

11. TAX POLICY • FEDUSA would urge Government to consider the lowering of marginal tax rates over the next few years as a measure to increase foreign investment as well as domestic private investment.

12. RETIREMENT SAVINGS • Taxation on the retirement funds have a direct effect on retirement capital contributors. • Review has been slow and very frustrating. • Pension funds are finding it difficult to beat inflation. • Any proposals pertaining to the legislative environment on withdrawals from retirement funds should be subjected to consultation at NEDLAC where the social security reform is currently being revised.

13. SPECIFIC FOCUS AREA • Crime – FEDUSA’s opinion – social stability is just as important as price stability as a pre – requisite for economic growth and development. Unacceptable high levels of crime. • Housing – R10,5 billion (Budget Review 2008 – Estimates of National Expenditure – Vote 26 : Housing, P525). FEDUSA welcomes the housing subsidy programme.