Minister of Finance Trevor Manuel’s budget has been labelled `boring’, but it augurs well for the future. Belinda Beresford and Donna Block report
The government may be keen to flirt with voters before the election, but the latest budget showed an administration also keen to display a well-turned piece of economic discipline to international investors while promising local business a mutually enjoyable long-term relationship.
In fact, the major complaint about Minister of Finance Trevor Manuel’s latest budget was that it was “boring”. Not much to complain about, no sudden U-turns to gain votes – rather a steady relationship with conventional economic wisdom while adhering to the government’s transformation plans for South African society.
The government has also given potential admirers and critics a potential report card in the form of the National Expenditure Survey: a fat book that will allow that nation to “follow the money”. Manuel described the new survey as a “powerful tool with which to call the government to account”.
Econometrix director Tony Twine said that 20 years of looking at government budgets led him to feel that the National Expenditure Survey was unlikely to provide transparency, although it would provide some translucency on the arcane government accounts.
Manuel forecast that economic growth will be 1,8% in the new financial year, rising to 3,2% for the first year of the new millennium and 3,8% for 2001.
This year the government plans to spend R216,8- billion, of which little more than R48-billion would go to service the country’s debt. Reducing this debt overhang is a priority for the government.
The provinces have tightened control of their finances after the catastrophic situations some faced in the past couple of years. Manuel said “more realistic” provincial budgets are due to be tabled in the next fortnight and that collectively the provinces were running a surplus.
Manuel said further restructuring of public services was “now urgent” in order to “meet the requirements of our country and our development programmes” and to allow increased social service spending. He said personnel costs account for 51% of non- interest spending and the public wage bill had risen by more than 12% annually between 1995 and 1998. The Budget Review says the “transformation of public service delivery depends on dynamic and adaptable employment practices” and talks about “redundancy management”.
Manuel said the government recognised the strains created by a high interest rate regime. He fired a shot across the bows of the growing micro-lending industry, in commenting that “too many people have become hostage to unscrupulous moneylenders”.
The minister of finance said the government would “not tolerate the blatant exploitation that appears to be taking place”, and warned that the tax authorities would “pay particular attention” to micro-lenders.
Changes in the income tax structures reaffirmed the administration’s intentions to provide some tax relief to ordinary working people, especially the working poor. There was a smorgasbord of schemes to help lower- and middle-income individuals, including a commitment from the government of R1-billion for poverty relief and employment projects.
Lower-income homeowners are to benefit from an adjustment to the current rates of transfer duty and exemptions. The reduced transfer duty rate of 1% of bond value will now apply to housing loans up to R70 000, instead of R60 000. The new higher limit will apply to purchases of dwellings held under a sectional title deed, while on appropriate unimproved land the exemption will increase to R30 000. David Knott of Syfrets Private Bank says this will bring much-needed “relief to the lower end of the market and the previously disadvantaged”.
However, with a property market going nowhere fast and consumers struggling with high interest rates and a huge debt burden there were some who hoped Manuel would give them a break in the form of a tax deduction for interest paid by bondholders. It has been shown overseas that the money cut from homeowners’ tax bills is saved or used for investment, thus contributing to growth in the economy.
April of next year is expected to see the introduction of a “skills development levy- grant scheme”. The Budget Review anticipated that this levy would initially be 0,5% of payroll, rising to 1% on April 1 2001. These levy payments would be deductible for purposes of income tax.
Certain other tax benefits such as tax holidays to firms locating to defined areas and the right to accelerated depreciation on capital expenditure will also disappear this financial year.
Manufacturing is likely to be particularly affected by the removal of the latter tax break, although the effects will be dampened by the overall fall in the company tax rate to 30% from 35%. Whether these changes will have a net effect on employment remains to be seen.
The drop in company tax has been welcomed by international investors, as has the fall to 35% from 40% in the tax paid by South African branches of foreign-owned companies.