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The Budget, the “People’s Budget” and the gaping hole 2005-03-03
Margaret Legum

By Margaret Legum, chairperson of the South African New Economics network (SANE) and founder of the Centre for Anti-Racism and Anti-Sexism

If you knew that the formal business sector will continue to decline as an employer from now on – that we must look elsewhere for income-producing work for our people – how would you assess government’s latest Budget?  

The Minister of Finance has indeed acknowledged that truth in another context, and poverty is, rightly, top of his agenda. But in terms of current macro-economic theory it is so revolutionary that policies are still being made as though, treated properly, business will come up with jobs to end poverty.

Thus tax reductions are given to encourage business to invest in new jobs. Where is the evidence? If anything they encourage investment in capital, which loses jobs, and in raising dividends to keep the flighty shareholders on board. Business’s job is to compete to survive and expand – and that involves losing jobs more often than creating them.

The Budget rightly acknowledges that ‘the first economy’ – large business – needs supplementing by small business. Taxation concessions there will help.  (It is a pity they are not encouraged to make use of Sectoral Education and Training Agency (SETA) training - even though they have not paid the levy - since the SETA’s have huge over-capacity to supply.)

Much more helpful to small business would have been a reduction in the rate of interest on loans. Radical thinking is needed on the relation between inflation and interest on bank borrowing. Huge incomes at the top of the economy are much more inflationary than increases in incomes at the bottom. The former bid prices up in an effort to spend, while poor people buy what is already over-produced – soaking up the surpluses.

Top incomes too large to be spent are ‘invested’ in property, which damages all of us. Normal interest rate changes do not affect that, because the self-fulfilling prophesy of property inflation is so large. Our interest rates are crippling to small business and do little to curb housing inflation. No wonder property inflation is not counted when the inflation rate is calculated.

But small business, however well handled, is not the answer to employment either. In the global market, business must expand or die; and small business is always killed or eaten by large business. Whenever there is a take-over or merger, jobs are lost. Globally, whether in retail (supermarkets, banks), production (factories) or agriculture (monoculture) large business creates an employment desert around it. That is how it works – it is not about ‘greed’ – and wishing will not make it otherwise.

Livelihoods are a different matter. Millions of people can make small or large incomes – from hawkers and fisher-people to consultants and designers – by offering the markets specialist goods and services. Forcing them to become small businesses can sign their death warrant.

The gaping hole in the budget is, of course, pointed out by the People’s Budget campaign (  The balance between the Budget’s support for the private and the public sectors leaves the government seriously short of the revenue it needs to meet the needs of people at the bottom end of our unequal society. That means both to provide developmental grants like a Basic Income Grant, and to employ people that can’t be paid by the market. The expansion in infrastructure development, though fine in itself, is not intended to create long terms jobs in the social sector or anywhere else.

The recent uprisings in tertiary education, the riots over service delivery and anger over utilities will not be the last. They derive essentially from a deep understanding that a society is not sustainable that allows mass poverty in the midst of huge wealth. Since it is now clear that wealth will not trickle down from the private business sector it must be created deliberately by moving financing resources from the employment-losing sector to the sector where employment is really needed.

The really crying need is for an expansion in employment in the non-market sector. That is, people who develop social capital, but cannot be paid directly: teachers, nurses and doctors, social entrepreneurs; those who care for vulnerable people (workers with the elderly and dying, abused and orphaned children, victims of family violence); people who promote and protect the environment and the arts; as well trained and well paid public service deliverers.

Put another way. There is not enough demand in the business sector for employees; but there is an enormous demand for employees in the sector that feeds society as a whole by giving it educated, skilled, healthy and happy people, who will also be productive. In the business sector, and the associated finance sector, there is an enormous accumulation of money that is being hoarded. What is needed is a way to bring that over to where it can be used effectively to employ people for the national good.

The People’s Budget suggests in effect that revenue can be found by a bigger deficit, an expanded budget and through the conventional taxation systems: higher taxes on companies and rich people, and a variable VAT on luxury goods. That will not meet the need for a serious shift in resources. New thinking and research is needed.

First, for instance, a small transaction tax would raise enough revenue to enable the Minister to abolish all other taxes if he so chose. (That would seriously advantage small business, which could kiss goodbye to all tax forms.)  It should include a tax on all currency dealing that is speculative - rather than financing something real - thus limiting the toxic effect of rand fluctuation.

Second, for instance, government debt to the banks is part of an inherited, unnecessary burden that eats into tax revenues. Only the banks benefit. The nation’s pensions and some other savings would be better and more safely invested in the nation’s infrastructure than in fluctuating stock market bubbles. Government would pay a rate of interests to savers rather than borrowing from banks; while savers could be given a guaranteed return through the government.  

More radical, but inevitable in time, government could end the right of banks to create money through loans. Instead it could give the benefit of new money creation to the nation as a whole. Banks would be allowed only to lend out what they borrow; only government would make new money, and spend it, without debt, into the economy.

Finally, if government were to achieve the task of raising revenue, new thinking would be needed on how to organise its disbursement. The career public service is not the only way to oversee national spending. Public/Civil partnership, mutualisation of ownership and local community private companies are new economic entities that need research in our country.

The Budget, combined with the President’s State of the Nation address, has made one political paradigm shift – from devotion to small government to promoting enabling government. That is extremely important, though hardly noticed. It can open the way to an economic paradigm shift to resource government properly.


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