By Norm Dixon
South Africa's finance minister, Trevor Manuel, on March 11 delivered the African National Congress government's fifth budget. The speech was met with applause from big business and raspberries from the trade union movement. With the introduction of three-year budgeting, only the dishonest or the deluded believe the ANC will alter its economic rationalist course.
The budget remained firmly within the confines of the conservative Growth, Employment and Redistribution (GEAR) macro-economic framework based on minimising government spending. Manuel pledged to keep the budget deficit at 3.5% for 1998/9, and reduce it to 3% for the following two financial years.
Overall, government spending remains static in real terms (allowing for a projected inflation rate of 6%). Health was among the few departments to win a real increase in funds, up by 24%. The prisons department won a massive 26% increase (after a 20% increase last year). Budget papers estimate that the number of prisoners will increase from 156,000 in 1998/99 to 200,000 in 2000/01.
In a decision that shocked many, the housing budget was slashed by 24%, confirming that the ANC's promise of 1 million houses by 1999 will never be fulfilled.
Income tax rates have been reduced for "lower- and middle-income earners" — those who earn between R46,000 and R60,000 per year. The most wealthy benefit, as the highest marginal tax rate of 45% begins at R120,000 rather than R100,000. The beneficiaries of these changes will be the new black managerial classes and the traditionally privileged white work force.
Most black wage earners earn less than R20,000 and must support family members who are among the 40%-50% of the black population outside the formal work force. The heavily regressive value-added tax remains at 14% for most goods and services, despite the ANC's pledge in 1994 to abolish it. The poor and working class will be hit with sales tax increases on tobacco, alcohol and petrol. At the same time, indirect taxes on many luxury goods have been reduced. Pension increases will not keep pace with inflation.
Public servants will be particularly hard hit. Manuel foreshadowed mass retrenchments. The government has not set aside enough funds to fulfil its obligations, set out in an agreement with public sector unions, to improve public servants' pay and conditions.
Big business was pleased with the budget. The SA Chamber of Business said Manuel should be commended for not succumbing to pressure from unions and the ANC's support base for increased government spending. The Afrikaans Handelinstituut (Afrikaans Chamber of Commerce) said Manuel deserved "a pat on the back" and that the budget made South Africa more attractive to foreign investors.
The Chamber of Mines praised the "many positive and constructive aspects" of the budget. "We are especially heartened by the government's clear commitment to fiscal discipline based on multi-year budgeting", said the chamber's chief executive officer, Tom Main.
The most enthusiastic praise came from South Africa's infant black capitalist class. The cream of the new elite gathered at a post-budget banquet to toast Manuel, reported the March 12 Weekly Mail and Guardian. The original budget speech was auctioned to raise funds for the ANC. The highest bidder, National Empowerment Corporation chairperson Mashudu Romanu, forked out R60,000 for the speech.
Former ANC premier of Gauteng province Tokyo Sexwale, now a high-flier in the international diamond business, described the budget as "very positive". Mustaq Bray, chairperson of Brimstone Investment Corporation said: "I grew up with Trevor Manuel in the Western Cape and he is doing a great job, with his whole team. The International Monetary Fund has recognised him as one of the best finance ministers in Africa."
South Africa's trade unions were less thrilled. The Congress of South African Trade Unions' deputy secretary-general Zwelinzima Vavi said Manuel's speech failed to inspire "any confidence or give any hope to the unemployed". Vavi condemned the government's threats to the jobs of public servants. COSATU will resist any retrenchments, he said.
COSATU secretary-general Sam Shilowa said that the "ideologically driven approach of the GEAR strategy" resulted in contradictory objectives such as "expanding some areas of social spending such as health and education, but cutting back expenditure on those who are expected to deliver those services such as teachers and nurses ... The budget envisages a cut back in the public sector, after the private sector has shed tens of thousands of jobs in recent months." COSATU's public sector affiliates described the government's move to renege on the pay deal with public servants as a "provocation".
The South African Municipal Workers Union sharply attacked the government's policies. "SAMWU is highly disappointed that Minister Trevor Manuel renewed the threat to public service jobs, rather than clearly define a program for extending desperately needed services to more communities, rebuild the economy, create jobs and meet the basic needs of the people. In other words, the Reconstruction and Development Program has well and truly been jettisoned." The union said it would oppose any restructuring schemes which paved the way for privatisation of public services.
According to the South African Press Association, the South African Communist Party praised the budget, saying it "was constructive and offered a well-balanced approach to meeting the country's delivery needs".