1. INTRODUCTION As a preliminary response to today's budget, COSATU acknowledges that it has both positive and negative elements. We believe that the positive elements could have been strengthened, and the negative aspects reduced, if it had not been for rigid macro-economic targets set by government, regardless of their social consequences. Those policies having a negative bearing on the budget especially those on deficit targets, monetary policy, trade and tariffs, and exchange controls.

2. DEFICIT TARGETS The effect of the targets set by GEAR are now being clearly seen. The arbitrary imposition of a 4% deficit target has serious consequences. If debt repayment is excluded, this years budget will entail considerable cutting of public spending, running into billions of Rand. This comes at a time when millions of South Africans living in poverty are not covered by a basic social security net, and when unemployment, already running at over 30% is still rising. Our limited public services in areas such as health and education, are already severely stretched. Many countries in the developed world, with advanced social security systems, are resisting deficit reduction, because of what they regard as acceptably high unemployment in their countries, which sits at a fraction of the problem we are faced with. The RDP was devised as a plan which envisaged an active, dynamic role for the state in combating these problems. In this context, a strategy which involves reducing the role of the state, and relying on the private sector to address this historical legacy, is based on questionable assumptions.

3. It is of serious concern to us that we are witnessing the running down even of the limited capacity which exists in the public sector. This is in stark contrast to the initial programme of government, which envisaged the radical transformation of that sector, the slashing of unproductive bureaucracy, and the massive expansion of the public sector in areas critical to the reconstruction process. This policy shift has less to do with the needs of the country, or sound economic planning, and more to do with pressures on us from vested local and international interests. The allocation to improve the conditions of service of public sector workers, while welcome in that it meets governments immediate obligations in terms of its agreement, is only a short term measure which doesn't form part of a coherent transformation plan.

4. ROLLOVERS The lack of effective transformation of the public sector is linked to the question of rollovers. It is alarming to see a rollover of R14,5 billion, over 10% of last years planned expenditure of R141 Billion (excluding interest payments). This certainly does not reflect the lack of demand in the country, especially for basic services and welfare. "Capacity" to spend effectively won't materialise out of thin air. The development of capacity requires an intensive programme to transform the state and appropriate policies to lever effective state spending. This in turn requires the deployment of more, not fewer resources. Cutting back of the public sector and voluntary severance packages, do not constitute a programme of transformation. Taken alone, they result in the running down off the public sector, and further erosion of its capacity to deliver. Talk of reprioritisation in this context is hollow.

Secondly, state spending policies which rely on private sector delivery will continue to see the inability of government to spend effectively. One clear example of this is housing policy, where a fraction of what government should be spending to achieve the 1 million housing target, is actually getting to people. An effective public housing programme however, would require a major expansion in housing funds. Lack of effective transformation programmes, and inappropriate policies should be targeted therefore. Rollovers should not be used as an excuse to cut spending, thereby worsening the problem even further.

5. PROVINCES The introduction of fiscal federalism is supposed to allow for greater decentralisation, flexibility and transparency. However, the block allocations to provinces (comprising nearly 70% of non-interest expenditure) don't allow for a disaggregation of the various budget items. That is taxpayers in Gauteng are not able to see how much of their tax is being spent say on Health, when compared to the Western Cape. More importantly, central government is unable to implement national priorities when it comes to provincial spending. An unaccountable or incompetent provincial government could therefore neglect basic services without central government being able to intervene. Government should take a political decision, as it has with housing to institute national direction of other basic services. Further, there needs to be mechanisms for effective tracking and co-ordination of spending in the Provinces.

6. JOB CREATION COSATU has set job creation as one of two key components against which the success of the budget and general economic policy is to be measured. The budget speech fails this test dismally. In his economic overview, the Minister of Finance admits that job creation lags behind the targets set in GEAR. No statistical information is provided on whether sustainable jobs have been created at all. This in itself, is a serious admission that the GEAR economic measures have not had the desired anticipated effect on job creation, something which COSATU has long warned about. In a country with such serious levels of unemployment, it problematic to pursue policies which do not enable government to deliver on the key priority of the Reconstruction and Development Programme. There has been GDP growth of about 3,1%, but this growth has largely been jobless. This is worrying in the light of the Minister's additional statements concerning gross fixed investment. He states this has increased by 10% in 1995 and 7% in 1996 - yet there has been little accompanying job creation in both years. We reiterate our call for a massive housing and public works programme which has the potential of creating up to 500 000 jobs.

7 ANTI-POVERTY MEASURES The increase in Old Age Pensions in line with inflation, or slightly higher, is welcome insofar as millions of poverty stricken South Africans rely