1. Why the new South Africa needs a new economic plan
The South African economy fails to deliver what is expected of it. It is acknowledged that certain fundamentals are in place, but it is equally true that the urgently required jobs and economic growth are not materialising. Since 1994 hundreds of thousands of jobs have been destroyed and formal employment shrinks at an alarming rate. These are the signs of an economy held afloat by potential that has not been properly unleashed.
Expectations about the economy and its potential for growth were justifiably high in 1994, when the first democratic government was elected. It was assumed that the end of sanctions combined with international goodwill and aid, as well as the extensive natural and human resources of the Country would all contribute to a healthy and fast growing economy capable of swiftly rectifying the damage done by the isolated Apartheid government. This document aims to build on the positive strides that have been taken and to address the shortcomings that prevent the South African economy from reaching its full potential and improving the quality of life of all South Africans. The present government lacks policies aimed at alleviating the need of especially the poor and economically marginalised people. As a result all South Africans find themselves poorer than in 1994, and poverty is on the increase on all fronts.
It is critical that we recognise that a responsible government cannot depend on market forces alone, and sit back while the economy and the quality of life of all its citizens are destroyed. In the final analysis, the needs of every South African citizen are rooted in the need for to a decent job and income. Therefore massive unemployment is at the root of every significant challenge facing South Africa today.
The economic choices need not be as stark as either extreme leftwing socialism, or extreme neo-liberal capitalism. In a globalising world no responsible government can allow itself to be caught in this ideological trap at the expense of its citizens. That is why supposedly staunch capitalist countries practice some form of state intervention, and vice versa why many supposedly firm socialist countries have introduced some form of open markets. It must be acknowledged that the terror attacks against the United States of America will mean a significant shift in the international agenda of the developed world, placing further responsibility on the South African government to engage in economic and social infrastructure development.
With a responsible government we mean, “A government willing to help all of its people become productive and self-reliant, capable of taking care of themselves and to contribute to the whole Country’s success.”
The UDM intends to place the faltering economy on a higher growth path. The UDM economic policy focuses on job creation with two broad strategy pillars, namely small business development and planned sustainable development aimed at infrastructure delivery.
Small business development is based on the belief that the most rapid and sustainable method of creating jobs is through small businesses, but this will require removing all the obstacles that have prevented small business growth to date.
Since 1994 there has been a heavy emphasis on attracting Foreign Direct Investment (FDI) which did not realise as was originally expected. At the same time government has neglected the encouragement of domestic investment. The UDM will pursue planned sustainable development programmes to promote domestic investment in our economy.
South Africans are suspicious and mistrust government because of perceptions that government is not equitably distributing the resources of the Country. The resources are exclusively enjoyed by a new privileged political elite. There is no consensus on a macro-economic policy that can transform the economy in a manner that could create and spread wealth wider and improve the lot of the disadvantaged majority. There are in particular concerns about the inadequacies and contradictions of the fiscal, industrial and labour policies. The government’s order of priorities leaves much to be desired.
Therefore the UDM proposes the establishment of a Presidential Council on planned sustainable development to reach consensus on these issues. In order for the Council to succeed the UDM suggests that it could be composed of the business community, labour, key state departments, institutions of traditional leadership, NGOs, civil society, religious groupings, youth, women and others. The Presidential Council will operate with nine provincial planned sustainable development substructures to accommodate and coordinate development at provincial and local government level.
We will introduce a policy of intervention by the state in the economy through planned sustainable development programmes that create jobs on a large scale whilst developing and maintaining infrastructure for the whole South Africa. These programmes will enhance economic and social infrastructure to increase the quality of life of all the people and communities of South Africa. The ultimate aim must be to ensure that the people of South Africa live in communities that are economically and socially viable.
The UDM recommends that a new body, the Presidential Council on planned sustainable development must be established to oversee the restructuring of public enterprises, so that the proceeds flowing from this process will be used to address backlogs and the imbalances of the past. We will look at models of other free market economies that had successes with state intervention in the economy, to determine which lessons can be applied to South Africa.
The UDM presents policies to South Africa to prove that there is indeed a responsible policy alternative that can increase economic growth and create jobs.
2. Vision statement
The UDM proposes that government must be focussed on job creation and stimulating economic growth, investor confidence and efficient service delivery, but must be equally aware, and willing, to responsibly intervene with the economy to open up business and employment opportunities for all South Africans.
The core of this economic plan is small business development. The UDM’s vision is to vigorously pursue policies that encourage and open up opportunities for individuals, single households, or groups of people to start and sustain their own small businesses. Through these activities they will empower and enrich themselves materially and spiritually, provide employment to others in their communities and enhance the general well being of society. The role of government is to promote and encourage the policies that will kick start business opportunity and enable small businesses to grow and prosper. Currently many South Africans cannot start small businesses due to obstacles, such as a lack of access to capital.
3. Broad objectives
The UDM’s economic plan combines a sustainable higher rate of real economic growth with a manageable budget deficit and responsible government intervention in the economy aimed at infrastructure development and job creation. The aim is to stimulate investor confidence, and bring about faster job creation, and more efficient service delivery.
South Africa needs an inspiring and shared economic vision of where we are going in the next ten years, in which all South Africans will feel that they have an important part to play in making the Country an economic, social and political success.
By trying to do too many things at once, government often fails to succeed. Government has therefore too many priorities putting its capacity and resources to deliver under severe pressure. It is faced with an overload of priorities and often focuses on peripheral issues, whilst neglecting major issues.
The UDM believes that our economic goals should be prioritised, namely:
- Achieving a rate of real economic growth of five to six per cent per annum, which we believe can be made sustainable.
- Turning the economy from “jobless growth” to “job-creating growth” by embarking on a job creation initiative that will not only reduce the current unemployment levels, but also create opportunities for new job seekers. This will be achieved with two broad strategies. Firstly, small business development will aim to unleash the job creation potential of small business by removing obstacles limiting or preventing their growth. Secondly, planned sustainable development programmes will be aimed at creating jobs through the development of new infrastructure and the maintenance of existing infrastructure.
- Alleviating poverty and reducing inequality predominantly through the creation of jobs and the expansion of business opportunities in our society, and assisting the poor to escape the poverty trap and become self-reliant and productive contributors to the economy. A Basic Service Subsidy, to assist poor people to afford basic service rates. This will also address the current discrimination against the rural poor, with urban areas being favoured for housing subsidies.
4. Specific proposals
The UDM regards the following fourteen issues as critically important parts of an economic policy.
4.1. Job creation through economic growth
Since 1994, the present government has failed to solve the economic problems of our Country and has not provided impetus to sustainable economic growth and investment.
The fact that the Minister of Finance expects an average real economic growth rate of 3.3% per year over the medium term expenditure framework is not good enough for South Africa, particularly as we may not even sustain economic growth at that rate. Unless we are able to achieve an average real economic growth rate of five to six percent per year over a long period, we will not be able to reduce the backlog of unemployment and poverty in South Africa, let alone create new and sustainable job opportunities and addressing inequalities in our society.
Unemployment remains the Achilles heel of the South African economy. Official statistics estimate that the level of unemployment in the formal sector of the economy is approximately twenty-five percent, while some analysts estimate it as substantially higher.
Under the present government, the economy has under performed in many areas in relation to its potential, and has not achieved the much higher levels of economic growth needed to reduce unemployment and poverty. It is simply not possible to continue with economic policies that do not allow people to grow their economy and to create jobs.
The UDM believes that the creative spirit inherent in many South Africans must be unleashed to create jobs. This can be done through a policy of small business development, whereby citizens can become wealth creators. A creative business spirit and capacity can be fostered by identifying and overhauling obstacles like unnecessary legislation and regulations, creating access to capital, establishing accessible markets for products, and by appropriate education, training and skills development.
Alternative and innovative financing options will be facilitated to assist small entrepreneurs. Such options will include the establishment of local stock exchanges, small and medium business investment corporations, community development banks, negotiations with investment and insurance funds for venture capital, and the establishment of credible micro-finance institutions.
We need a holistic plan for the development of South Africa. This includes infrastructure development that creates for government the opportunity to responsibly intervene in the economy. Rapid infrastructure development and maintenance should be designed to stimulate economic development, growth and job creation. In this regard government will be an important role player, coordinating the efforts of all spheres of government through planned sustainable development programmes.
The UDM will steer the Country in the direction of high economic growth by improving the confidence of all participants in the economy. A major challenge is to close the gap between the “haves” and the “have-nots” by enabling our people through sustainable economic development, making South Africa a world-class nation in ten years.
It is essential to engage representatives of all socio-economic sectors, including all spheres of government, business, labour, churches and NGOs in active discussion on a one-to-one basis to ensure maximal economic policy cohesion and consensus for progress and development. Big talk-shops, such as NEDLAC will be abolished. The UDM proposes specifically, in its public works policy for job creation and infrastructure development programmes, the establishment of a new body, the Presidential Council on Planned Sustainable Development. Labour and all other economic and social stakeholders will find that this new forum will be a much better mechanism to implement, and not only talk about, economic and social programmes that increase the quality of life of all South Africans. Labour and all other participants in the Presidential Council will become signatories to a Development Accord that recognises that the economic and social upliftment of all South Africans is the number one priority of every South African committed to making the new democratic South Africa an economic and social success, and attracting domestic and foreign investment.
The UDM recognises the key role of international and domestic tourism in job creation. It is estimated that tourism currently contributes approximately only 5% of our GDP, whilst it is possible to double it over the medium term. It is estimated that such growth could create as many as 750 000 jobs. The UDM will therefore actively pursue policies and actions to promote tourism. Greater government resources will be dedicated to develop and market tourism in South Africa and to stimulate the local and international market. The concept of Transfrontier Conservation Areas (TFCAs) or “peace parks”, spanning the borders of countries in the Southern African region, should be endorsed by SADC as a regional priority where governments will become the drivers of this concept. The South African government should play a leading role in this process and thereby contribute to increasing tourism to South Africa and the region. Tourist infrastructure will have to be modernised.
4.2. Manageable Budget deficit
The UDM supports the concept of a Manageable Budget Deficit, requiring fiscal discipline to ensure that government borrowing does not exceed reasonable limits, but allowing government the leeway to invest in infrastructure delivery, thereby creating jobs, to address imbalances and inequality. The UDM believes that government is in a position to embark on such programmes because it has a constant overrun on its income side due to the success of SARS in collecting taxes. This concept of a Manageable Budget Deficit will only be applied to capital expenditure on infrastructure development programmes aimed at job creation.
Furthermore, wasteful and unnecessary government expenditure must be identified and terminated.
4.3. Progressive tax policy
Under the current government the level of taxation on individuals in South Africa is comparatively high in comparison with other emerging countries. Overall tax rates are also high by world standards. This is an extremely negative factor in the economy and has severely undermined the savings performance. Under the current government taxation is becoming increasingly complex and cumbersome, with the introduction of a number of new taxes and levies. The UDM proposes that taxation must be simplified over the medium term.
To boost an improved national savings performance, the UDM believes that the focus of taxation should be progressive – taxing the rich more than the poor – and that tax on personal income, up to R 4000 per month, should be abolished. Such a step will give much needed relief to lower income groups. This tax-free bracket should be adjusted over time to allow for inflation, and regularly reviewed, as and when the livelihood of average households improves in line with improved economic conditions in our society.
Recognising the huge challenges facing South Africa currently, the UDM proposes that income tax be kept at the same level for an interim period and that this income be earmarked for priority issues. The UDM will commit itself to an accord with voters that this is a temporary measure and that this money will be spent on two priority areas in a manner that makes a visible difference in the quality of life of all South Africans. The one percent of income tax earmarked for this purpose will be divided equally between Crime Fighting and Skills Creation. The proceeds will go directly towards these two programmes, and will be reported upon as separate items by the National Treasury.
The UDM will see to it that the existing 20c levy on all South African banking transactions is altered and enhanced to a new ad-valorum rate of 0,05%, which could generate additional revenue of approximately R10 billion per annum. This will also be levied on non-residential bank accounts to include all speculative transactions. The healthier our economic system, the lesser room there will be for speculators to impact negatively on the lives of millions of ordinary people.
The UDM will abolish the marketable securities tax (MST) on investment and trading in the Venture and Development capital markets of the JSE Securities Exchange. This will boost the depth and liquidity of these sectors and facilitate the listing of more small companies, as well as the flow of foreign investor funds to these sectors. All capital gains, which investors generate in these sectors, will be declared tax-free. The current 0.25% marketable securities tax rate on the transactions on the main board of the JSE Securities Exchange will remain. The UDM will also make it attractive for small businesses to list and participate in the Venture and Development Capital Markets of the JSE Securities Exchange through measures such as tax incentives.
The UDM believes that Capital Gains Tax (CGT) is the wrong tax at the wrong time for South Africa, due to the fact that it will have a negative influence on investor confidence and may hurt people with no access to land tenure.
The tax on fuel will be cut to relieve the burden of transport costs on commuters who travel long distances. Subsidies to big synfuel companies will be abolished.
In order to boost the property market and make it easier for first time homeowners to acquire property, transfer duties on all property transactions and property tax will be made progressive with low rates for transactions below R100 000.
4.4. Globalisation and trade liberalisation
The present government’s over hasty and unbalanced approach to globalisation of the economy and its irresponsible abolition of import protection and export subsidies for key industries resulted in hundreds of thousands of job losses, especially among low-income industrial workers, thereby contributing to poverty.
All international treaties and trade deals entered into by SA must serve the interests of South African taxpayers first. SA is not making the most of its resources. The prescripts of the World Trade Organisation against state intervention is being contravened by several major developed countries, which is not to say that unbridled intervention must be allowed, but simply that it would be irresponsible for government to stand by whilst certain industries and sectors are decimated by international trade. In such cases, it is vital that government, for a limited period only, give those industries some form of adjustment assistance to ensure that industri