Gordhan refuses to tax the rich to enhance job creation and support the majority/poor

The 2012/13 National Budget, presented to Parliament yesterday by Minister Pravin Gordhan, fails to heed the Call for Budget Justice. Gordhan’s budget appeases South Africa’s wealthy minority with tax relief and spending on big business infrastructure in the vain hope that by doing so the private sector will invest in the economy and stimulate growth benefitting the majority of South Africans who remain poor. However, South Africa now has over a decade of hard experience that private sector lead economic growth does not translate into the creation of jobs or reduction of inequality.

The 2012/13 Budget continues government’s policy of in effect redistributing wealth from the poor to the rich. The budget deepens inequality.

Social grants – the financial lifeline of many millions of South Africans – have NOT been adjusted ‘in line with inflation’, as the Treasury claims in the budget review. The grants to children, the disabled, war veterans and pensioners have been increased with only between 4.1 and 5.7 percent. Already in December, Statistics South Africa estimated price increases hitting poor households to be over 8 percent. Food price inflation is even higher – 11 percent – and can be expected to rise even further during the year. In real terms, the poor will have to live on less than they did last year.

AIDC calls for a break with the tax policy inherited from GEAR

In stark contrast to those receiving social grants, government has handed out a R9.5 billion tax relief, more than the tax relief in 2011/12. Adjustments for so-called ‘bracket creep’ have meant that since 1999 the highest tax bracket for personal income tax has been compensated at DOUBLE the rate of inflation. If the government had limited its bracket adjustment to the rate of inflation, the highest tax bracket would today start at about R280 000 rather than at the unduly generous R580 000 in taxable income. This would have allowed for a more proper progressive tax rate at the top.

It ought to be embarrassing that R9.5 billions is given in tax relief to the minority of the population that pays personal income tax, while the social budget gets only R8.1 billion more, meaning that poor households have again taken a knock.

The Finance Minister persists with the self-imposed tax cap of 25% of GDP, which first appeared in the 1996 GEAR document. Most of the developed countries give a far greater weight to the smaller social needs of their people.

An investment in social infrastructure is needed

Much has already been said about the infrastructure investment programme announced in the State of the National Address. We have three cautionary points to make in respect of this plan:

• Over successive budgets, the government has failed to spend the amounts allocated to capital and infrastructure projects. This is because the state has emasculated itself by its outsourcing mania;
• Government has failed to develop South Africa’s capacity to produce the goods and services needed for its infrastructure programs. As a result, jobs have effectively been exported to rich countries from where we have to import these goods;
• This programme reinforces the dominance of the Mineral Energy Complex, based on more extraction, more pollution and more dirty energy. This completely negates the hosting of COP 17 in South Africa and the government’s commitment to the reduction of South Africa’s very high green house gas emissions.

In conclusion: This is not a just budget; Finance Minister Gordhan has once again failed to cross the jobs and poverty Rubicon. In the face of mass unemployment and extremely urgent and unmet need, it is reasonable to expect the Minister to have focused much more on creating decent work and an environment for decent livelihoods.

Luckily, a contour of an alternative development plan has emerged. This is promoted by civil society, churches, trade unions and social movements − like NUMSA, the People’s Budget Campaign, Equal Education, the campaign for One Million Climate Jobs or the Call for Budget Justice. Here we find investment plans centred on basic social infrastructure and public assets, and proposals for labour intensive projects that protect or restore threatened or destroyed environments.

Another budget for another economic policy is possible and urgently needed!

Mark Weinberg
Alternative Information Development Centre (AIDC).

Gordhan refuses to tax the rich to enhance job creation and support the majority/poor

The 2012/13 National Budget, presented to Parliament yesterday by Minister Pravin Gordhan, fails to heed the Call for Budget Justice. Gordhan’s budget appeases South Africa’s wealthy minority with tax relief and spending on big business infrastructure in the vain hope that by doing so the private sector will invest in the economy and stimulate growth benefitting the majority of South Africans who remain poor. However, South Africa now has over a decade of hard experience that private sector lead economic growth does not translate into the creation of jobs or reduction of inequality.

The 2012/13 Budget continues government’s policy of in effect redistributing wealth from the poor to the rich. The budget deepens inequality.

Social grants – the financial lifeline of many millions of South Africans – have NOT been adjusted ‘in line with inflation’, as the Treasury claims in the budget review. The grants to children, the disabled, war veterans and pensioners have been increased with only between 4.1 and 5.7 percent. Already in December, Statistics South Africa estimated price increases hitting poor households to be over 8 percent. Food price inflation is even higher – 11 percent – and can be expected to rise even further during the year. In real terms, the poor will have to live on less than they did last year.

AIDC calls for a break with the tax policy inherited from GEAR

In stark contrast to those receiving social grants, government has handed out a R9.5 billion tax relief, more than the tax relief in 2011/12. Adjustments for so-called ‘bracket creep’ have meant that since 1999 the highest tax bracket for personal income tax has been compensated at DOUBLE the rate of inflation. If the government had limited its bracket adjustment to the rate of inflation, the highest tax bracket would today start at about R280 000 rather than at the unduly generous R580 000 in taxable income. This would have allowed for a more proper progressive tax rate at the top.

It ought to be embarrassing that R9.5 billions is given in tax relief to the minority of the population that pays personal income tax, while the social budget gets only R8.1 billion more, meaning that poor households have again taken a knock.

The Finance Minister persists with the self-imposed tax cap of 25% of GDP, which first appeared in the 1996 GEAR document. Most of the developed countries give a far greater weight to the smaller social needs of their people.

An investment in social infrastructure is needed

Much has already been said about the infrastructure investment programme announced in the State of the National Address. We have three cautionary points to make in respect of this plan:

• Over successive budgets, the government has failed to spend the amounts allocated to capital and infrastructure projects. This is because the state has emasculated itself by its outsourcing mania;
• Government has failed to develop South Africa’s capacity to produce the goods and services needed for its infrastructure programs. As a result, jobs have effectively been exported to rich countries from where we have to import these goods;
• This programme reinforces the dominance of the Mineral Energy Complex, based on more extraction, more pollution and more dirty energy. This completely negates the hosting of COP 17 in South Africa and the government’s commitment to the reduction of South Africa’s very high green house gas emissions.

In conclusion: This is not a just budget; Finance Minister Gordhan has once again failed to cross the jobs and poverty Rubicon. In the face of mass unemployment and extremely urgent and unmet need, it is reasonable to expect the Minister to have focused much more on creating decent work and an environment for decent livelihoods.

Luckily, a contour of an alternative development plan has emerged. This is promoted by civil society, churches, trade unions and social movements − like NUMSA, the People’s Budget Campaign, Equal Education, the campaign for One Million Climate Jobs or the Call for Budget Justice. Here we find investment plans centred on basic social infrastructure and public assets, and proposals for labour intensive projects that protect or restore threatened or destroyed environments.

Another budget for another economic policy is possible and urgently needed!

Mark Weinberg
Alternative Information Development Centre (AIDC).