RESPONSE TO THE MEDIUM TERM BUDGET POLICY STATEMENT (MTBPS) 11 RESPONSE TO THE MEDIUM TERM BUDGET POLICY STATEMENT (MTBPS) Address to the Standing Committee on Finance 4 November 2009 COSATU, NEHAWU and NUMSA 11/10/09 11

CONTEXTUAL CHALLENGES As of 2000, for every R1 worth of wage earned by workers, employers appropriated on average R1.10. However by 2008, the rate of exploitation had increased to 250%, which means that for every R1 earned by a worker, employers appropriated R2.50. These numbers show that the recovery of the rate of profit in the South African economy has been based on the attack on the share of workers in national income. The rate of exploitation of Labour in the South African Economy 11/10/09 22

CONTEXTUAL CHALLENGES (cont) Almost a year after the exchange rate strengthened in 2002, the South African economy began to run the current account deficit. The strengthening of the exchange rate occurred between 2002—2006. In the process the current account persistently worsened. The exchange rate depreciated in 2006 towards 2007. During this period the current account deficit began to slow down. However because of the global crisis is deficit is likely to persist, because the exchange rate is artificially kept strong in order to generate a market for foreign goods in South Africa. The rate of depreciation of the exchange rate 11/10/09 33

KEY EXPECTATIONS Commitment to the principle of decent work 44 KEY EXPECTATIONS Commitment to the principle of decent work Creation of employment opportunities Must be central to all state interventions and macro-policy. Fiscal and monetary policy mandates, including interest rates and exchange rates, must promote decent jobs, economic growth and general developmental imperatives. 11/10/09 44

KEY EXPECTATIONS (cont.) Must address the misalignment between fiscal and monetary policy response to the recession and broad implications for the current account deficit. Weaker exchange rate necessary to discourage imports and ease pressure on local producers Reduce interests rates to ease credit market conditions, discourage speculation in the financial markets, and to enable fiscal policy to divert resources to social spending as opposed to servicing interest on public debt. COSATU calls for interest rate reduction to 3% Tax on non-essential consumption imports to reduce current account deficit Inflation targeting must be replaced by stance that makes decent employment overriding policy objective. 11/10/09 55

KEY EXPECTATIONS (cont.) Promotion of local procurement with emphasis on local content and production. More expansionary approach: Widening of social security safety nets (both existing programmes and implementing new polices such as the National Health Insurance), and more generally on health, education, housing, basic services, etc and investment in key public infrastructure programmes. 11/10/09 66

KEY EXPECTATIONS (cont.) Tighter regulation of public sector procurement to address problems of wastage and corruption. 11/10/09 77

Comments on MTBPS Proposals COSATU RESPONSE: Broad in principle support as it is consistent with the commitments made at ANC 2007 Conference and Election Manifesto. However, need for increased emphasis on “decent work” as opposed to narrow focus on job creation. MEDIUM TERM PRIORITIES • Creating jobs; • Enhancing the quality of education; • Improving health outcomes; • Emphasizing Rural development; • Fighting crime and corruption 11/10/09 88

Comments on MTBPS Proposals (cont) COSATU RESPONSE: Support the bolder and more expansionary stance as compared to February 2009/10 budget. However, expansion more constrained in the medium term, which would mean that it would be less responsive to structural trends of poverty, inequality and unemployment extending beyond the recession. Tax proposals as incentives to business and job creation yet to be clarified. FISCAL STANCE Budget deficit for 2009/10 revised up to 7.6% and declines to 6.2%, 5% and 4.2% respectively in 2010/11, 2011/12 and 2012/13. Increased spending on social commitments 11/10/09 99

Comments on MTBPS Proposals (cont) ON MONETARY POLICY COSATU Remains Concerned about the following: Treasury’s renewed support for the Reserve Bank using interest rates to target CPI. Proposals to introduce more business friendly relaxation of exchange controls. Here we call for these proposals to be tabled at NEDLAC for engagement. However we agree with Treasury’s support of Reserve Bank’s approach to accumulate foreign exchange reserves as a mechanism to moderate the appreciation of the rand. However, would strongly prefer more direct intervention in exchange rate policy to counter strong rand implications for unemployment. 11/10/09 1010

Comments on MTBPS Proposals (cont) ON SOCIAL SPENDING: Broadly support the overall expansionary stance on social spending: Full support for extension of child support grants to 18 year olds over the medium term. However, no clarity regarding increases for these and other social grants to mitigate previous below inflation increases. Increased emphasis on spending on education and school nutrition is positive. However, would have preferred further emphasis on eventual introduction of free schooling. Support emphasis on NHI. However, lack of clarity on the detail of its implementation raises concern , as the NHI is anticipated to be rolled out in the medium term. Social security proposals on the whole fall short of addressing need for comprehensive coverage, taking into account the needs of many of those who are structurally unemployed and cannot therefore qualify for existing grants. 11/10/09 1111