Trevor Manuel boasted of increased government spending, but analysts say the budget won’t boost development in real terms. Ann Eveleth reports
Low-income wage earners will benefit from significant tax cuts this year, but the Reconstruction and Development Programme (RDP) is poised for a setback following real cuts in most social spending categories as the 1999/2000 budget fails to keep pace with inflation.
Minister of Finance Trevor Manuel’s upbeat rendition of the nominal increase in government spending masks development funding cuts that emerge when figures are adjusted for inflation, say economic analysts for the Anti-Poverty Coalition.
Manuel’s 1999 Budget Review estimates consumer price inflation for the year at 7,6%. That means the government would have to increase last year’s budget of R205-billion to R220,5-billion this year just to keep pace with inflation. At R216,8-billion, government spending is set to drop by 1,8% in real terms. This is despite a 2% real rise in government revenue over the past year.
Sally Timmel and Elroy Paulis, of the University of the Western Cape’s popular economics unit Fair Share, and National Labour and Economic Development Institute researcher Ravi Naidoo put Manuel’s budget under the microscope this week as part of a civil society coalition response to the budget.
The Anti-Poverty Coalition includes the South African National NGO Coalition, the Congress of South African Trade Unions (Cosatu), the South African Council of Churches, the Southern African Catholic Bishops’ Conference and Fair Share.
Said Timmel: “Other than conditional grants, every RDP department has had its budget cut in real terms.”
Hardest hit are water and sanitation programmes, with this year’s R2,5-billion marking a 19,9% real decline from last year’s R2,9-billion.
Next up is agriculture, where structural reforms of credit boards, parastatals and credit schemes probably explain the 16,9% real drop from R736- million to R658-million.
Rural development is dealt another budget blow with the 14,3% real reduction in the land affairs budget, from R752-million last year to R693-million this year.
While the department has failed to spend its budget in the past, recent capacity growth and policy reforms were expected to push up expenditure on land reform this year.
The housing budget marks an equally dramatic real drop of 14,4% from R3,8-billion last year to R3,5-billion this year.
Both the education and health budgets represent real drops in spending, although the decline in these sectors is smaller.
Combined national and provincial education spending is set to drop by 0,7% in real terms, although climbing nominally from R45,4-billion last year to R48,5-billion in 1999/2000.
The total health budget will decline by 2,2% in real terms this year, despite a nominal increase from R22,8-billion to R24-billion.
And while civil service and welfare pension spending rose nominally from R18,9-billion to R19,8-billion, this represents a real cut of 2,6%.
Manuel boasted that individual monthly pension benefits would rise by R20. But Timmel said this nominal 4% increase was overshadowed by inflation, so that it actually amounts to a 3,6% cut in the value of this year’s pension.
Fair Share described this as a “disappointing” cut in “the most important financial support to the rural poor. Rural poverty, which is likely to gain the least from the job creation programmes, remains a challenge.”
What has risen – by a shocking 11% over last year – is the amount South African taxpayers are shelling out to service South Africa’s R338- billion debt albatross. This now accounts for 22,2% of total government spending. The increase is attributed to the rise in interest rates.
Most of this debt is linked to the Government Employee Pension Fund. Cosatu has welcomed Manuel’s commitment to investigate restructuring the fund. But Manuel is sticking to his guns, saying, “The government is not persuaded that increased service delivery can be sustained in this way.”
South Africa employs a prepaid system for the fund, which means it sets money aside now for a large portion of all the pensions of public servants it will have to pay – often far in the future.
Timmel said the government’s decision to fund 72% of these costs now flies in the face of growing economic wisdom that funding 60% of a prepaid system is sufficient.
She endorsed calls for South Africa to adopt a pay-as-you-go system which would free up substantial funds.
“Private companies use prepaid systems in case they go bankrupt. I don’t think the government is in danger of going bankrupt, and if it did, why should public servants be in a better position than anyone else?” she asked.
Anglican Archbishop Njongonkulu Ndungane welcomed Manuel’s commitment to reprioritising government spending, but said this did not translate into a discernible difference to the poor and unemployed, because poor people bore the brunt of South Africa’s debt service costs.
Ndungane also welcomed the R1-billion allocated to poverty relief and job creation, but said this was a “drop in the ocean”.