South Africa: 'Guns not butter' budget criticised
By Norm Dixon
South Africa's ruling African National Congress (ANC) has been criticised for introducing an annual budget on February 23 that massively boosts spending for the armed services, reduces the proportion of the budget devoted to social spending and continues to reduce taxation for the most wealthy. It continues the ANC's unashamedly pro-big business direction.
Most areas of social spending will suffer cuts in real terms, or just keep pace with inflation, depending on whether the government achieves its goal of a 3-6% inflation range. However, this may be difficult because of rising oil prices and the impact of the recent devastating floods throughout southern Africa. Inflation is presently running at 7.7%.
Overall, social spending has declined from 57% of total non-interest spending to 55.8% compared to the previous budget, the first such decline in a decade. Health and welfare spending is up 7.7% and education is up 6.1%. Government spending on housing and community services has been slashed by 7.7%. Spending on tertiary education was also cut, from 7 billion to 6.2 billion rand.
The defence budget has been increased by a massive 28% to pay for the first stage of a R30 billion (A$7 billion) hardware spending spree that includes three new submarines, four corvette war ships, 30 helicopters and 42 jet fighters and trainers.
The ANC's tight rein on spending is being maintained, with the budget deficit being held at a miserly 2.6% of GDP. Privatisation will continue with sell-offs budgeted to raise R5 billion for "debt reduction" this year, rising to R10 billion in 2002-3.
In a ominous sign for public sector workers, the budget allocates only 5.5% extra for personnel costs. Still smarting from the government's imposition of a below-inflation wage rise last year, public servants are likely to be subjected to the same this year.
South Africa's wealthiest taxpayers had their top marginal rate reduced from 45% to 42% and the threshold was lifted from R120,000 to R200,000. More than 20% of the R9.9 billion in forgone tax will land in the pockets of the very small number of South Africans who earn more that R150,000 a year. Someone on R200,000 a year will be R7560 better off. Those earning between R70,000 and R150,000 each year benefit from 38% of the forgone tax.
While the a new token capital gains tax will claw back a small part of the wealthy's windfall, its introduction was primarily a ruse to divert attention from, and lessen criticism of, measures that benefit the rich, such as the further easing of foreign exchange rules and the cut in the top tax rates.
The budget contains some tax relief for low- and middle-income earners. The lowest marginal rate has been reduced from 19% to 18% and the threshold increased.
However, the more than 40% of black South Africans without a job will be no better off because the ANC has yet again failed to abolish the 14% value added tax (South Africa's GST), despite having come to power in 1994 pledged to do that. Indirect taxes on cigarettes and alcohol have again been boosted.
For the first time in many years, company tax rates have not been reduced (in 1994, South Africa's corporate tax rate was 48%; in 2000 it is 30%). However, the ANC has agreed that firms that qualify as "small businesses" will now have to pay only 15% tax on the first R100,000 of earnings.
"The minister is prepared to talk the talk of addressing poverty but he's not prepared to walk the walk", said the national director of the anti-apartheid women's group Black Sash, Hillary Morris. She pointed out that about 66% of children would not receive the R100 per month child support grant — which has not been increased since 1998 and is insufficient to feed a child — by 2003 as previously promised by the government.
Old age, disability and war veteran pensioners were granted a tiny R20 (3.8%) a month raise, to R540 a month ($117). Had the rise been consistent with the inflation rate, the pension would have been boosted by at least R40. Morris said that the pension remained inadequate to keep recipients out of poverty.
Big business was generally happy, although its representatives did signal that they would expect more of the same in the next budget. The Cape Chamber of Commerce and Industry deputy director Colin Boyes welcomed the cut in personal incomes taxes because it will allow almost R10 billion to flow out of government coffers "back into the economy" (i.e., the pockets of the wealthy). "The government is to be particularly congratulated on continuing to show fiscal discipline", Boyes added.
These sentiments were echoed by the National Association of Automobile Manufacturers, the Chamber of Mines, the South Africa Chamber of Commerce and the National African Federated Chamber of Commerce and Industry. The right-wing opposition parties — the Democratic Party, the National Party and the Inkatha Freedom Party — all praised the ANC budget as far as it went, but all felt that privatisation should have been speeded up.
The South African Communist Party "welcomed" ANC finance minister Trevor Manuel's "emphasis on eradication of poverty and inequalities". It also welcomed the introduction of the capital gains tax and tax relief for lower-income earners "as being in line with progressive taxation and redistribution of wealth from the rich to the poor". The SACP praised the ANC for not raising the VAT rate.
A more accurate assessment of the budget was issued by the South African Democratic Teachers Union on February 24. SADTU said Manuel's budget punished the poor and working classes in its continued commitment to tight fiscal restraint, privatisation and deregulation of the economy. The ANC government has "bowed to the market fundamentalists who propagate a minimal state role in the economy", SADTU said.