At one point while delivering his 11th budget, Finance Minister Trevor Manuel stopped and asked a colleague: “Too much? Too little?”
These four words could sum up this week’s watershed budget, which, for the first time in decades, showed a surplus — this despite the fact that the government plans to spend R2-trillion over the next three years. Manuel paused for effect during his Budget speech: “That’s a two and 12 zeros,” he said.
The R5-billion surplus for the past budget year more or less matches underspending of R5,3-billion for the year, but this masks bigger problems.
The government could be prudently running a budget deficit. GDP is ballooning, thanks in good part to its successful management of the economy, and is expected to be R1,7-trillion this year.
A budget deficit of 3% is R50-billion a year or R150-billion over the next three-year budget cycle. That’s 15 and 10 zeros of spending foregone in a country still plagued by gross inequality, unemployment and poverty.
It is not that government has not been ramping up social spending. In 1994, social expenditure made up 43% of the budget. The budget cake is now considerably larger, total expenditure having risen from just R186-billion in Manuel’s first budget to R533-billion for the coming year. Social expenditure has, meanwhile, risen to 56% of this much larger cake.
The ministry which will receive by far the largest slice this year is social development, with 22,47% of the total; nearly twice that of the safety and security department, in second place with 12%.
Also worrying is the fact that this year’s tax take is budgeted to come in at slightly above 28% of GDP, significantly higher than the 25% target the government has set itself to ensure that the country remains a competitive investment destination.
Put in Manuel-speak, this is also 15 and 10 zeros which the finance minister is planning to take unnecessarily and unfairly from taxpayers over the next three years.
The government, economist Mike Schussler notes, has R100-billion (eleven zeros) in the bank. “They’ve never had so much money.”
More is coming. One of the reforms announced in the budget speech is a R2-billion cut in corporate tax by scrapping the secondary tax on companies (STC) and replacing it with a new tax on dividends. South African corporations have amassed more than R600-billion in cash holdings because of their reluctance to pay STC. Manuel’s reform opens the way for more cash to slosh its way towards government.
It could be said there would be even more revenue if the government had higher expectations of its own sprawling interests, from arms to telecommunications. As noted by columnist Reg Rumney, Manuel is budgeting for a paltry R1,5-billion in dividends.
“There is no figure for Eskom, which paid a dividend of R1-billion in the 2006/07 fiscal year. The SABC, Safcol and Denel (which gets a R933-million bail-out from government) are estimated to pay nothing.”
But taxpayers who have been watching the messianic zeal Public Enterprises Minister Alec Erwin brings to his ministry will be pleased to see that he has to produce workable business plans for his fondlings before up to R3-billion will be released.
The Treasury has turned down a request by SAA for R4-billion; it has raised doubts about the Pebble Bed Modular Reactor’s start-up viability and said other investors need to be found before the mini-nuke company starts accessing the bottomless pit of taxpayer largesse.
Likewise, treasury also wants to see a business plan for new state-owned broadband company Broadband Infraco.
Tax cuts for individuals more or less match fiscal drag, meaning they correct for inflation and leave taxpayers as a whole where they were before.
There could not have been bigger tax cuts for individuals, the reasoning goes, because South Africans cannot be trusted to save the extra money. They will blow it on imports, putting even greater strain on the balance of payments.
It is arguably better for Manuel to look after their extra money, while Reserve Bank Governor Tito Mboweni chides them for their inability to save. It is also not politically astute to cut taxes for rich people while so many South Africans live by drudgery.
The government continues to be hampered by constraints in combating poverty. Its expenditure on key social services is already more than respectable compared to that of similar developing countries, but it often falls short of offering value for every rand spent.
Manuel’s own department is one of the best resourced and run. Replicate this across the country and we would probably be running a healthy budget deficit. But even Erwin’s department evidently could not produce credible business plans in time, and there is the sense that Manuel would have begun tackling green issues in this budget if the necessary motivation had come from environmental affairs.
In the meantime, government is building capacity, or trying to, by spending over R2-billion in the next three years on various initiatives.
Manuel is fond of saying that fiscal space — a budget surplus in ordinary language — can be used to build windmills in the calm. His key construction in this budget is the forced savings plan which will help develop a savings culture in the country. A related proposal will subsidise the wages of low-income earners to pay their contributions to forced savings.
All the while the economy grows at about R100-billion a year. That’s eleven zeros.
“There’s too much money,” Mboweni told journalists at a budget briefing, “there had to be some fiscal contraction.”
Tell that to the poor and unemployed.