Trade unions in South Africa play a significant role in the economy. Trade unions have been active in responding to the fiscal policies of government. Unions argue that their proposals for the budget will increase economic growth and support job creation. Criticism of trade union views on the budget has focused on the affordability of these proposals, and on their impacts on business growth. Will trade union alternatives on the budget support economic growth and economic inclusion?
1. Introduction
Trade unions played an important role in South Africa’s transition from apartheid in 1994 and continue to play a very public role in the South African economy (STEENKAMP, 2005). COS ...view middle of the document...
Employment creation is a crucial part of poverty reduction (Hull, 2009) and COSATU argues that it the role of government under the Constitution of the Republic of South Africa is to provide of providing all its citizens with the means to live a life of dignity (COSATU press statements, 2014) and that government should not absolve itself from this responsibility through the private sector. The paper will conclude by suggesting alternative methods to promote economic growth and economic inclusion.
2.1 Austerity fears pertaining to growth of real GDP in South Africa
COSATU has expressed fears that the South African economy is in austerity mode after GDP( gross domestic product) figures were released showing that the South African economy had grown by 2% year on year, beating forecasts on 1.7% growth in GDP for 2013 (Trading Economics, 2013). COSATU’s main argument is that this growth is a cut in real terms when accounting for population growth and they are suggesting that the government boost spending (expansionary fiscal policy) because the economy is growing slow. However, COSATU have not considered the fact that there is upside inflationary pressure (Fin 24, 2014) and an increase in spending would lead to an even greater cut in real terms due to the fiscal lag involved with government spending. Increasing government spending is a long term solution and the government have decided to increase spending on infrastructure by R827 million over the next 3 years (SAnews.gov.za, 2013) but some of the infrastructure such as schools, clinics and hospitals is not likely to contribute to GDP growth as there are no goods or services that are included in GDP calculation that come from these 3 places. Investment spending by public service enterprises is also too slow to spur economic growth to full potential (Munshi, 2014). COSATU feels the amount allocated is sufficient but they do not see proposed spending materializing and this is because local infra-structure investment is far too little given the extensive infrastructure backlog (Munshi, 2014). On-going strikes in the mining (platinum) sector will also hinder economic growth with the strikes costing the South African economy $36 million a day (Bloomberg, 2014) the strikes will greatly reduce the mining sectors contribution to GDP in Q2.
2.2 Social Spending
COSATU is not satisfied with the increments stated by government allocated to transfer payments such as child care grants and social grants, stating that the increment in the child care grant was “pathetic” (COSATU press statements, 2014). Transfer payments have an adverse effect on the budget balance, which has been a deficit for the past 10 years.
Source: www.tradingeconomics.com, South African Reserve Bank, 2014
An increase in transfer payments will make it difficult to cut the budget deficit and as an alternative, government expenditure on less necessary items such as entertainment which amounted to R4.67 billion in 2012 (Sapa, 20...
