Sentiment has improved, but to capitalise on the turnaround, Trevor Manuel must define the strategy for implementing Gear, argues Madeleine Wackernagel
SO, Trevor Manuel will get to present his first Budget after all, despite rumours of a Cabinet reshuffle earlier this year.
Already he has quietened his detractors by showing the deficit target is on track, albeit due to increased revenue collection rather than expenditure cuts, but no matter. This finance minister is determined to stick to his guns – which leaves him with very little room to manoeuvre next Wednesday.
If he is to live up to the expectations created by the growth, employment and redistribution (Gear) strategy unveiled last June – and specifically, the deficit projections – the 1997/98 Budget will confine itself to tinkering rather than large-scale expenditure changes.
By the same token, the Katz Commission on taxation is not due to report until August, thus the revenue side is equally constrained.
The Democratic Party’s Budget Proposals, presented this week, call for a rise in the rate of value added tax to 15%, but analysts consider such a move unlikely in the face of fierce opposition from the labour movement.
In addition, there is little scope to lower company taxes or compensate for bracket creep in personal income tax rates. Some changes to the secondary tax on companies and marketable securities tax are possible; the DP would like to see them abolished, along with donations tax and estate duty – at a cost to the fiscus of R1,8-billion.
More important than the nuts and bolts, however, is the overall structure. Says Nico Czypionka, chief economist at Standard Bank: “We realise the government has little room to manoeuvre in terms of policy, but this has to be the year of implementation. What we want to see from the Budget are the details of how Gear will be set in motion. That is what the markets are waiting for – and would give Manuel the opportunity to make a real impact on macro-economic policy.”
Certainly, Manuel would do well to capitalise on the turnaround in sentiment witnessed in the past two months. The South African Chamber of Business’s confidence index was up again in February, by 0,9 of a percentage point, thanks to the stronger rand, higher exports and soaring share prices.
But, warns the chamber, the Budget needs to be convincing: “Continued domestic and foreign confidence depends on the performance of the Gear-directed economy.” In this context, sticking to the 4% deficit target for this financial year is paramount.
More important to the labour constituency than fiscal probity, however, is reprioritisation of expenditure. Says James Heintz of the National Labour and Economic Development Institute (Naledi): “Our biggest concern is how the money is spent. We would like to see a greater emphasis on development spending – health, education, welfare and housing must take priority.”
He raises concerns about the lack of participation in the budgetary process by the various stakeholders. “In effect, we now have 10 budgets rather than one, because each province gets to allocate its resources independently of national priorities. We need a co-ordinating institution to ensure that healthcare, welfare, education and housing are not sidelined by the provincial governments.”
Delivery is certainly top of everyone’s agenda – and pivotal to Gear’s success. And while the lower growth levels predicted for this year will, to some extent, restrict the authorities’ options, the revised figures give no cause for alarm.
Indeed, Dr Chris Stals, governor of the Reserve Bank, was at pains to lift growth hopes this week, predicting an increase of 3% for this year, against a consensus forecast among economists of about 2,5% and a projected 2,9% set out in Gear.