/ 5 December 1997

Budget ‘revolution’

Three-year rolling Budgets facilitate long- term planning, writes Madeleine Wackernagel

Minister of Finance Trevor Manuel has taken all the fun out of Budget day. No more anxious scanning of the Budget book in search of revenue and expenditure targets: they are now freely available for the next three years.

Some elements do survive Manuel’s Budget revolution, however: tax changes will still be announced only in March, as will the breakdown of expenditure by sector.

But judging by the revenue projections made this week, there is not much room for manoeuvre. Better revenue collection and broadening the tax base are the priority; political considerations make a hike on value-added tax, for example, unpalatable.

Customs & Excise, Manuel admitted, is still the biggest problem, but with the autonomy granted the South African Revenue Service earlier this year, efficiency gains should be achievable.

At this stage, expenditure is forecast to increase at a rate of 9,5% annually over the next three years, while the Budget deficit as a percentage of gross domestic product (GDP) falls from a projected 4% in 1997-98 to 3,0% in 2000-01.

Economic growth for this year has been revised to a more realistic 2%, although the department still thinks 3% is possible next year. Most economists are aiming for 2,5%.

While these targets are indeed more conservative than those set out in the growth, employment and redistribution strategy released last year, they may still be too optimistic. Already there are doubts that the 4% deficit projection will be achieved in this fiscal year unless the provinces drastically rein in their spending.

Economic growth at 3%, 4% and 5% for 1998- 2001 respectively could easily be knocked by the effects of El Nio or a worldwide slump sparked by this year’s crisis in the financial markets. Asia has yet to recover its spirits and while recession is unlikely, a slowdown is imminent.

But Manuel is adamant that the Budget deficit will be cut to 3% by the end of the decade, in turn curtailing the interest bill and freeing up resources. The tax burden will also be limited to around 25% of GDP, something business has been urging for a while.

In addition, the reprioritisation of spending is firmly on track: defence is down to 1,7% of GDP, while social security and welfare is up from 2% to 3%; and public order and safety is up from 2,4% to 3%.