Linda Ensor
5 November 2009
Cape Town — The labour movement wants the emergency fiscal measures adopted by the Treasury to deal with the recession to become policy over the long term, and wants the Reserve Bank to give up its concentration on reining in inflation by slashing the repo rate to 3%.
The demands of the Congress of South African Trade Unions (Cosatu) in a submission to Parliament's two finance committees on the medium-term budget policy statement yesterday are in stark contrast to the views of economists and business that fiscal discipline over the next three years will be critical if the government is to prevent a slide into a debt trap.
The Treasury said keeping the budget deficit at this year's estimate of 7,6% of gross domestic product would be unsustainable and it would have to be brought back to 4,2% in 2012-13. Instead, Cosatu wants the expansionary fiscal stance to continue so that, as the economy recovers and tax revenue rises, government spending would grow.
This would enable it to address the structural issues of poverty, inequality and unemployment.
Cosatu parliamentary office co- ordinator Prakashnee Govender also called for higher taxes on imported luxury goods to bring down the current account deficit. She blamed inflation targeting for encouraging currency speculation, which strengthened the rand and stimulated demand for foreign goods at the expense of local jobs.
Cosatu called for direct intervention in exchange rate policy to keep the currency low.
Govender said the federation agreed with the Treasury's support of the Bank's approach to accumulate foreign exchange reserves to moderate the appreciation of the rand, but opposed its use of interest rates to target inflation.
Business Unity SA (Busa) deputy director Raymond Parsons told the committees that "while Busa supports deficit financing as an essential counter-cyclical approach at this juncture, it is equally important to emphasise the steps needed to wind down the deficit over the next few years". Parsons said it was vital that confidence in SA's financial solvency and fiscal sustainability be bolstered and for government spending to be efficient.
Both Busa and the Federation of Unions of SA (Fedusa) called for a new funding model for Eskom to avoid tariff increases to the order of 45%. Fedusa deputy general secretary Gretchen Humphries said such a tariff rise would have a "huge negative impact" on the poor, while Parsons believed it would be another "big shock" to the economy, which it would not be able to absorb.
He said Busa would propose a new funding model for Eskom in its submission to the National Energy Regulator of SA, focusing on public- private partnerships.
Parsons raised concern about the effect of administered prices generally on inflation, saying they had kept interest rates higher than they might otherwise have been.
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